Qualified charitable organizations include nonprofit groups that are religious, charitable, educational, scientific, or literary in purpose, or that work to prevent cruelty to children or animals.
Examples of Qualified and Non-qualified Organizations
Contributions That Benefit the Taxpayer
If you receive a benefit in exchange for a charitable contribution, the deduction is reduced by the value of the benefit received.
Example: Paul made a $70 donation to Public TV and received a $40 CD of his all-time favorite band, the Herman’s Hermits, in appreciation for his donation. His deduction equals $30
Deductible as Charitable Contributions
Nondeductible as Charitable Contributions
A donor-advised fund is a fund or account in which a donor can, because of being the donor, advise the fund how to distribute or invest amounts held in the fund.
Contributions to donor advised-funds.
A deduction to a donor-advised fund is not deductible if:
Contributions of Property
If used items were given to charity, such as clothing or furniture, the fair market value of the items is used to determine the deductible amount. Fair market value is what a willing buyer would pay a willing seller when neither has to buy or sell and both are aware of the conditions of the sale.
Charitable Contribution Deduction Limitation
Suspension of limitations for disaster relief. The AGI limitations do not apply to qualified contributions for relief efforts in disaster areas. However, certain limits may apply if your qualified contributions are more than your AGI minus all other allowable contributions.
60% limitation. Beginning in 2018, the percentage AGI limitation for charitable contributions by an individual of cash to public charities and certain other organizations is increased from 50% to 60%.
30% limitation. The 30% AGI limitation applies to the following:
• Donations to organizations that are not 60% limit organizations, such as veteran’s organizations, fraternal societies, nonprofit cemeteries, and certain private non-operating foundations.
• Donation of property that is used by a charity, other than capital gain property donated to a non-60% limit organization.
• Deduction for student living expenses.
20% limitation. The AGI limitation applies to all donations of capital gain property to, or for the use of, a charity that is not a 60% limit organization.
Donating a Vehicle
Obtain written acknowledgement from the organization, which includes details on the use or disposition of the vehicle by the donee organization. A copy of the written acknowledgement must be attached to the tax return.
The deduction limit for vehicles may be less than fair market value under the gross proceeds’ deduction limit.
1) If the organization sells the donated vehicle without a significant intervening use or material improvement by the donee organization, then the deduction is limited to the gross proceeds received from the sale.
2) If the organization sells the donated vehicle after significant intervening use or material improvement to the vehicle, the deduction is limited to the fair market value of the vehicle.
3) If the organization sells the vehicle at significantly below fair market value, the gross proceeds limitation will not apply if it was a gratuitous transfer to a needy individual in line with the purpose of the charity to provide transportation to the poor.
Contributions of Less Than $500
A written acknowledgement is still required if the contribution is $250 or more. If the organization sells the vehicle without any significant intervening use or material improvement, and the sale yields gross proceeds of $500 or less, the deduction is equal to the lesser of fair market value or $500.
Example: Jack donates his car, worth $800, to a charity that turns around and sells it for $400 without any significant intervening use or without making any material improvements. Jack can deduct $500 as a charitable contribution for the donation of his car. Because his deduction is $250 or more, he still needs a written acknowledgement from the charity, but the acknowledgement is not required to be attached to his return.
There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following:
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