Charitable Gifts

What is a charitable gift?
A charitable gift is a contribution of cash or property to, or for the use of, a qualified charity. Americans give billions of dollars to charities each year, partly because charitable donations are tax deductible. To receive a tax deduction for your gift, you must itemize your deductions and make the gift to a qualified organization, not to a specific person. For example, a gift that's for the benefit of an individual flood victim isn't deductible, but a gift to a qualified organization that helps flood victims generally is deductible.
Tip: For contributions made during 2006 and 2007, the Pension Protection Act of 2006 permits persons aged 70 ½ and older to exclude from their gross income qualified charitable distributions of up to $100,000 a year from a traditional IRA or a Roth IRA. Distributions must be made directly from the IRA to the charity, and all the usual requirements for charitable deductions must be met. Please call our office if you would like more detail on how to make an IRA distribution to charity.

What is a qualified organization?
Not all contributions to tax-exempt organizations are tax-deductible. Instead, the contribution must be to a qualified organization. Churches, synagogues, temples, mosques, and governments automatically get qualified organization status. Other organizations must apply to the IRS, which publishes a list of qualified organizations (IRS Publication 78), updated quarterly. The list, however, is not all-inclusive (i.e., there are some qualified organizations for which the deductions are tax deductible that aren't yet on the list). If you want to donate to a charity but you're not sure if it's a qualified organization, ask the charity or the IRS.

Charitable contributions in general
Generally, you can deduct a contribution of money or property that you make to, or for the use of, a qualified organization. The amount that you can deduct in any given year is limited to a specific percentage of your adjusted gross income (AGI), as discussed in the following sections. If you receive a benefit as a result of making a contribution, you can deduct only the amount of your contribution that exceeds the value of the benefit received.

Limits based on adjusted gross income (AGI)
Deductions limited to 50 percent of adjusted gross income (AGI)
Your deduction for charitable contributions cannot amount to more than 50 percent of your AGI for the year, and lower percentage limits can apply, depending on the type of property that you give and the type of organization to which you contribute. The 50 percent limit applies to gifts you make to qualified organizations that are public charities or private operating foundations, such as churches, certain educational organizations, hospitals, and certain medical research organizations associated with the hospitals. Most organizations can tell you whether or not they are 50 percent limit organizations.

Deductions limited to 30 percent of adjusted gross income (AGI)
Your deduction for charitable contributions made to organizations that are not 50 percent limit organizations (see above) cannot be more than 30 percent of your AGI for the year. Organizations that are not considered 50 percent limit organizations include veterans' organizations, fraternal societies, nonprofit cemeteries, and certain private non-operating foundations.

Five-year carryover of unused charitable deductions
You can carry over your contributions that you aren't able to deduct in the current year because they exceed your AGI limits. You can deduct this carryover amount until it is used up but not beyond five years. If you use the standard deduction in any of the years, the carryover amount must be reduced by the amount that you would have been able to deduct had you itemized.

What kinds of contributions aren't deductible?
A contribution to a specific person
You may deduct a donation to a qualified organization that provides aid to the homeless but not a donation to a homeless person you encounter on the street.

A contribution to a nonqualified organization
The organization must meet IRS criteria of a qualified organization.

The value of your time or services
You may deduct unreimbursed amounts that are directly connected with the services you provide and which you incurred only because of the services you gave, but you may not deduct the value of your time or services.

Your personal expenses
You may not deduct expenses that are your personal, living, or family expenses.

Record keeping
Cash contributions
For your cash contributions, regardless of the amount, you must keep either a bank record (e.g., cancelled check, credit card statement) or a written communication (receipt or letter) from the charitable organization that shows (1) the name of the charitable organization, (2) the date of the contribution, and (3) the amount of the contribution. For donations made in taxable years beginning after August 18, 2006, these record-keeping requirements cannot be satisfied in any other way. For donations made in taxable years beginning prior to August 18, 2006, in the absence of a bank record or written communication, the IRS accepts other reliable written records that show (1) the name of the charitable organization, (2) the date of the contribution, and (3) the amount of the contribution.

A non-cash contribution under $250
To deduct a non-cash contribution under $250, you must get a receipt from the organization that includes your name, the date, the location of the organization, and a reasonably detailed description of the property. You must also have reliable written records for each item you donated. You are not required to get a written receipt when it is impractical to get one (e.g., at an unattended drop-off site).

A non-cash contribution between $250 and $500
You need a receipt like the one required for a non-cash contribution under $250, but it must also include details on whether the charity gave you any substantial goods or services for your contribution, as well as a description and good faith estimate of the value of any goods or services you received. You have to get this receipt on or before the earlier of the date you file your return or the due date (including extensions) for filing the return.

A non-cash contribution between $500 and $5,000
You need a receipt that includes details on whether the charity gave you any substantial goods or services for your contribution and a description and good faith estimate of the value of any goods or services you received. Additionally, your records must include how and when you got the property and how much you paid for it. You must also complete Form 8283, Non-cash Charitable Contributions, and attach it to your return.

A non-cash contribution over $5,000
You need a receipt and records like those required for non-cash contributions between $500 and $5,000, but you also need a qualified written appraisal of the property from a qualified appraiser. Appraisal fees incurred in determining FMV of donated property are not part of a charitable contribution but can be deducted as a miscellaneous deduction on Schedule A.

Technical Note: The IRS defines a qualified appraiser as an individual who (1) has earned an appraisal designation from a recognized professional appraisal organization or has otherwise met minimum education and experience requirements, (2) regularly performs appraisals for which he or she receives compensation, (3) can demonstrate verifiable education and experience in valuing the type of property for which the appraisal is being made, (4) has not been prohibited from practicing before the IRS at any time during the three years preceding the appraisal, and (5) is not excluded from being a qualified appraiser under Treasury regulations.

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