Overview
Charitable contributions of money or property may entitle
you to an income tax deduction in the year of the gift.
The deduction generally is equal to the amount of cash or
the fair market value (FMV) of property contributed. The
deduction may be limited based on the type of contribution
(cash or property) and the nature of the organization to
which you make the contribution (for example, a public
charity or private foundation). Excess charitable contribution
deductions generally may be carried forward for five years.
Most deductible contributions are made to U.S.
organizations described in section 501(c)(3) of the Internal
Revenue Code, which generally describes non-profit
entities that are organized and operated exclusively for
religious, charitable, scientific, educational, and certain
other exempt purposes.
These organizations are classified as either public charities
or private foundations. In addition, contributions to
governmental entities may be deductible. Note, however,
that contributions to non-charitable organizations generally
are not deductible. Further, with certain treaty-based
exceptions, contributions to organizations formed outside
the United States generally are not deductible.
Deduction Limitations
Limits on charitable contribution deductions vary depending
on whether you are contributing to a public charity or a
private foundation.
Public charities generally include:
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churches, schools, hospitals, qualified medical
research organizations, and qualified agricultural
research organizations
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organizations that have active fundraising programs
and receive contributions from a broad cross-section
of sources
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organizations that receive income from the conduct of
activities in furtherance of their exempt purposes
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organizations that actively function in a supporting
relationship to one or more other public charities.
Deductibility of payments for certain state and local tax credits:
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The new tax law imposes a $10,000 limit on the deductibility of
state and local taxes.
(See section on State and local income tax deductions).
In response, some states created tax credit programs to
provide taxpayers with federal charitable contribution deductions while
simultaneously providing a tax credit against state income taxes.
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In August 2018, the IRS issued proposed regulations which, if finalized,
would render these state legislative efforts ineffective. The proposed
regulations, which would apply to certain charitable contributions
made after August 27, 2018, generally require taxpayers to reduce their
charitable contribution deduction by the amount of the state or local tax
credit they receive or expect to receive as a result of their contribution
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However, the proposed regulations contain two exceptions to this
general rule:
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If the state tax credit received or expected to be received by the
taxpayer does not exceed 15% of the payment or of the fair market
value of the property contributed, the taxpayer does not reduce the
value of their deduction.
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If the taxpayer receives or expects to receive a state or local tax
deduction in exchange for the contribution, they reduce the value
of their charitable contribution deduction only if the state or local
tax deduction exceeds the payment or the fair market value of the
property contributed.
Tax Exempt Organization Search (formerly, EO Select Check), updated monthly,
lists most charitable organizations to which contributions are deductible,
in addition to the deductibility limitations applicable to such organizations.
Unfortunately, certain organizations, such as churches, normally do not appear in
Tax Exempt Organization Search—even though they are eligible to receive
tax-deductible contributions. Tax Exempt Organization Search can be found on
the IRS’s website at
http://apps.irs.gov/app/eos
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Generally, gifts of cash to public charities are fully
deductible up to 60% of a donor’s AGI (50% prior to 2018),
and gifts of appreciated property or gifts “for the use of”
public charities are deductible up to 30% of a donor’s AGI.
Gifts of property, when the deduction is limited to the
donor’s basis, are deductible up to 50% of a donor’s AGI.
Private foundations typically have a single major source
of funding (usually gifts from one family or corporation
rather than funding from many sources). Private
foundations generally belong to one of two categories:
(1) “non- operating” or “grant-making” foundations (those
that make grants to other organizations or individuals),
or (2) “operating foundations” (those that directly
operate charitable programs). Generally, gifts of cash to
non-operating private foundations are fully deductible up to
30% of a donor’s AGI, and gifts of appreciated property to
non-operating private foundations are deductible up to 20%
of a donor’s AGI. Gifts to operating foundations, meanwhile,
are subject to the same limits as gifts to public charities.
Planning Tips:
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Evaluate both your tax and philanthropic goals when making charitable
contributions. Although contributions to public charities have a higher
deductibility limitation than contributions to private foundations,
contributions to a private foundation may afford you greater control
over the use of the funds. Alternatively, you may consider establishing
a “donor-advised fund” through a local community foundation,
mutual fund, investment firm, or bank. A public charity sponsors
the donor-advised fund, thus affording you the higher deductibility
limitation, and you are able to advise the charity on how you would
prefer the funds to be used.
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To ensure the deductibility of your contribution, confirm that the
intended recipient organization appears in Tax Exempt Organization
Search or ask the donee organization for a copy of its IRS
Determination Letter that shows it is eligible to receive tax-deductible
contributions. IRS rules also obligate you to confirm that the IRS has
not revoked the organization’s exempt status, including by ensuring
that the organization does not appear on the “Auto-Revocation List,”
also found within Tax Exempt Organization Search.
Types of Contributions
After evaluating your tax and philanthropic goals and selecting a charitable
organization, you will need to decide whether to contribute cash, services, or
property. As discussed above, donations of cash generally are straightforward
and limited only by the percentage deduction limitations. Conversely,
deductions for services (for example, time incurred, expertise rendered, or use
of property) usually are not permitted.
Special rules apply to contributions of certain types of property, such as:
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Clothing or household items
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A car, boat, or airplane
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Taxidermy property
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Property subject to a debt
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A partial interest in property
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A conservation easement
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Inventory from your business
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A patent or other intellectual property
Planning Tips:
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Although you cannot deduct the services you
donate to a charitable organization, you can
deduct out-of-pocket expenses incident to
rendering these services, including mileage for
your use of a passenger automobile.
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Deductions for contributions of property are
also complicated. The amount of the charitable
contribution deduction generally is the FMV of
the property on the date of the contribution.
However, your deduction for property gifted to a
private foundation may be limited to your basis
in that property. Additionally, if the property has
increased in value, you may have to make some
adjustments to the amount of your deduction. You
should consult your tax adviser for assistance in
determining the amount of your deduction for a
contribution of such property.
A gift of appreciated property (including
company stock) that has been held for more than
one year generally can provide a double benefit:
you obtain a charitable contribution deduction
equal to the property’s FMV on the date of the
contribution, and the gain is not taxable income.
There are special rules for contributions of such
property to private non-operating foundations.
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In the case of publicly traded stock that you
currently hold and in which you want to continue
investing, consider making a donation of that
stock rather than an equivalent amount of
cash. If you make a charitable contribution of
appreciated stock and use the cash that you
otherwise could have contributed to purchase
replacement stock, you will have the same
charitable contribution deduction and get a
stepped-up basis in the replacement stock, thus
potentially reducing your taxable gain on the
new stock when you eventually sell it.
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If you own investment or business property
that has declined in value, consider selling
the property and donating the proceeds of
the sale. You may be able to recognize a loss
deduction on the sale in addition to a charitable
contribution deduction for the donation of the
cash proceeds. By contrast, if you donate the
property, your deduction is limited to FMV, and
you cannot claim a loss deduction.
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If you are planning a large gift, contact
your tax adviser to learn more about these
and other alternatives for charitable giving.
Often, your income requirements and charitable
giving desires can be satisfied with one
comprehensive plan.
Contributions of Future or Partial Interests
Certain gifts of future interests in property will result in
a current tax deduction. By giving future interests, you
can accelerate deductions to the year of the gift while
maintaining an income stream or the property for you or
your beneficiaries. Charitable remainder trusts, pooled
income funds, gift annuities, conservation easements, and
remainder interests in a personal residence each afford this
type of treatment.
(See section on “Transfer Tax Planning.”)
Recordkeeping Requirements
You must keep records to prove the amount of the
contributions you make during the year. The kind of
records you must keep depends upon the amount of your
contributions and whether they are cash, property, or
out-of-pocket expenses. Note that a charitable organization
generally must provide you with a written statement if it
receives a payment from you that is more than $75 and is
partly a contribution and partly for goods and services (for
example, a fundraising dinner or entertainment).
If you make a contribution through cash, check, electronic
funds transfer, debit card, credit card, or payroll deduction,
you must maintain a bank record or written receipt, letter,
or acknowledgment from the charitable organization.
The record must show the name of the organization,
the date of the contribution, and the amount of the
contribution. For each cash contribution you make that is
$250 or more, you must obtain a contemporaneous written
acknowledgment from the charitable organization.
If you make a contribution of property, the records you
must keep depend upon whether your deduction for the
contribution is less than $250; at least $250 but not more
than $500; over $500 but not more than $5,000; or more
than $5,000. For all contributions of property, you must
also keep additional written records that include, but are
not limited to, a description of the property, the FMV of the
property on the date of the contribution and how that value
was determined, the basis of the property, and any terms
or conditions attached to the contribution of the property.
Planning Tips:
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In determining whether you made a contribution
of $250 or more, do not aggregate separate
contributions to the same organization.
For example, if you donated $100 per month to
a charity, your monthly payments do not have to
be combined.
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To determine whether your deduction is more
than $500 (or more than $5,000), combine
your claimed deductions for all similar items of
property donated to any charitable organization
during the year.
