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It’s been said that one person can make a difference and every person should try.

At a time when the demands on our charitable organizations continue to increase, every donation can and does matter.

To encourage and reward your good deed, the federal government offers an income tax benefit for many charitable contributions. For example, if you contribute to charity and itemize deductions on your tax return, you may be able to deduct the amount of cash and the value of personal or real property that you donate.

However, the American Jobs Creation Act, the Pension Protection Act, the Tax Cuts and Jobs Act and final regulations published by the IRS have all changed federal tax rules that affect your charitable contributions. Read on for the current federal tax rules and substantiation requirements.

Which Charities Qualify for Tax-Deductible Contributions?

To be deductible, your charitable contribution must be made to or for the use of a qualified organization. Generally, that means an organization operated for one or more of the following purposes: religious, charitable, educational, scientific, literacy, or prevention of cruelty to children or animals. Donor advised funds are included among the charitable organizations that can receive tax-deductible gifts.

The IRS provides an online search of tax-exempt organizations eligible to receive tax-deductible contributions.

What Contributions are Deductible?

You can generally deduct the cash you contribute to a qualified charity and the value of any personal or real property you donate. Donated clothing and household items must be in good used condition or better.

You can also deduct any unreimbursed out-of-pocket expenses you incur in making a contribution to charity, including expenses related to donated time or services. That includes expenses related to the use of your car, such as gas and oil ― or a standard mileage rate for charitable purposes.

You cannot deduct the value of the time or services you contribute to a charitable organization.

If you receive merchandise or other goods or services in return for your contribution ― such as a shirt or a ticket to a charity event, performance, or major-league game ― the amount of your deductible contribution is reduced accordingly. Your deductible contribution is equal to the value of your contribution less the value of the goods and services you receive. If you purchase goods or services from a charity at more than fair market value, the excess is a deductible contribution. Note that new for 2018, contributions made for the right to purchase athletic tickets that were preciously 80% deductible are not considered charitable deductions.

Must You Itemize?

For the most part, you must itemize to receive a tax deduction for your charitable contributions.
Fewer people are itemizing than was true in the past because tax reform doubled the amount of the standard deduction. This means that people who now take the standard deduction, as opposed to itemizing, will not receive a tax benefit from their donations to charity.

On the other hand, for those with higher incomes and sufficient deductions to itemize, tax reform eliminated a significant constraint — the Pease limitation — through 2025. This limitation phased out, and ultimately capped, the total amount of itemized deductions you could claim based on your income. Now, without Pease, your income doesn’t limit the total amount of itemized deductions you can claim, which includes your charitable deduction.

It’s also worth noting that tax reform reduced the individual tax rates through 2025, which ultimately reduces the after-tax benefit of charitable contributions and other deductions.

Special Limitations Based on Adjusted Gross Income (AGI)

You can generally deduct the full amount of charitable donations you make in cash to public charities, up to 60 percent of your adjusted gross income. Note that this percentage is reduced to 50 percent if you also donate any non-cash property to any charity or if you donate cash to any nonpublic charity. These rules apply through 2025, after which the percentage is reduced to 50 percent for all cash contributions.

For donations of property, the deduction is limited to 30 percent of your AGI. However, if the property includes appreciated capital gain assets, the limit is 20 percent of AGI.

If your charitable deduction in any year is limited based on your AGI, you can carry over the excess charitable deduction for up to five years.

Special Rules for Qualified Charitable Distributions

If you’re age 70 ½ or older, you can donate up to $100,000 directly to charity from your IRA, inherited IRA, rollover IRA or deemed IRA and it won’t count as income. This type of charitable distribution also qualifies as a required minimum distribution.

That means, if you meet the age requirement, you can get a tax benefit from charitable donations even if you don’t itemize and it isn’t technically a deduction.

How so? You don’t pay taxes on the amount of the IRA withdrawal, which would otherwise be taxable income. And the withdrawal amount isn’t included in your adjusted gross income, or AGI. Because AGI is a basis for determining things like Medicare premiums, medical expense deductions, taxable Social Security and net investment income tax, reducing the amount of your AGI is an added benefit.

SIMPLE IRAs and SEP plans are not eligible for qualified charitable distributions.

SEE ALSO Considering a Charitable Donation from Your IRA? A Direct IRA Distribution to Charity Provides Financial and Tax Benefits

Recordkeeping and Substantiation Requirements

To support your charitable donation for tax purposes, you’ll need some form of written documentation.

In most cases, the charity that receives your donation is required to provide you with written documentation that includes all information required to claim a tax deduction. The type of information required depends on both the amount and form of your donation.

Cash Donations

You need documentation to support any donation you make in cash or with a check or other monetary contributions. Examples include a cancelled check, bank statement, credit card statement, or a receipt provided by the charity. The documentation must include your name, the charity’s name and the date and amount of the contribution.

For a single donation of $250 or more, you must have a written acknowledgement from the charity that includes your name, the name of the charity, the date and amount of the donation, whether you received goods or services in exchange, and a good-faith estimate of the value of any goods or services received. You must receive this document from the charity by the extended due date of your return ― or the date you file your return, if earlier.

If your charitable donation is made through a payroll deduction, you can use a pay stub, W-2, or other employer-provided document to support your donation. However, if the charitable deduction from any single payroll period exceeds $250, you’ll also need a statement from the charity indicating whether you received goods or services in return.

Noncash Donations

For charitable contributions of property, there are additional requirements. You must be able to substantiate the fair market value of the items. The Salvation Army provides an online valuation guide for donations to help you establish the value of your donations.

If the value of your donated property is less than $250, you’ll need a contemporaneous written acknowledgement from the charity that includes your name, the charity’s name, the date and location of the donation, a detailed description of the property, and estimate of the fair market value and how the value was determined. In cases where that is not possible ― for example, if you leave your donations at an unattended collection site ― you should keep your own written records that include the same information, plus an estimate of the value of the property.

If the value of the property is at least $250 but not more than $500, you’ll need a written acknowledgement from the charity that includes your name, the date and location of the donation, a detailed description of the property, whether there were any goods or services provided in return and, if so, an estimate of fair market value. The documentation must include a separate acknowledgement for any single item worth $250 or more. You must get the acknowledgement from the charity by the extended due date of your return ― or the date you file your return, if earlier.

If the value of the property is more than $500, your records must also include information regarding how you acquired the property, the approximate date you acquired it, and the cost or other tax basis. You’ll also be required to file a completed Form 8283 (Section A), Noncash Charitable Contributions with your tax return.

If the total value of the donated property is more than $5,000, you’ll generally need to obtain a qualified appraisal of the property and file a completed Form 8283 (Section A or B, depending on the property donated) with your tax return. An appraisal is not needed when you are donating publicly traded securities.

Finally, if your contribution is more than $500,000, you must also attach the qualified appraisal to your return.

Donations in Return for Goods and Services

If you contribute money or property worth more than $75, and receive goods or services in return, the supporting document you receive from the charity must include a good-faith estimate of the value of those goods or services.

Special Rules for Donating Automobiles, Boats, and Planes

There are special requirements if you donate your personal motor vehicle, boat, or airplane to charity and it is valued at more than $500. Under these circumstances, the IRS requires that the written acknowledgment you receive from the charity must include: your name and social security number, the vehicle’s identification number, and certain additional information, depending on the use or disposition of the vehicle by the charity. You’ll also be required to file a completed Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes.

The acknowledgment must be provided to you within 30 days of the sale, if the charity sells the vehicle in an arm’s length transaction to an unrelated party. It must be provided within 30 days of the contribution, if the charity certifies that the vehicle won’t be transferred before the completion of “material improvements or significant intervening use,” or the charity certifies that the vehicle will be “transferred to a needy person at a price significantly below fair market value”.

Special Rules for Qualified Charitable Distributions from an IRA

To support the charitable distribution from your IRA, you’ll need a written document from the charity that includes the date and amount of the charitable contribution, the name of the IRA custodian, and a statement that no goods or services were provided in exchange.

Qualified Appraisers

For donations of property you need to obtain a qualified appraisal no sooner than 60 days prior to the contribution date and no later than the extended due date of your personal tax return, that means you’ll need a qualified appraiser to perform the appraisal. The tax rules define a qualified appraiser as a person with verifiable education and experience in valuing the relevant type of property for which the appraisal is performed. The tax regulations indicate that verifiable education refers to having successfully completed relevant coursework at the professional or college-level and that coursework must include valuing the same type of property.

Verifiable experience refers to either two or more years of valuation experience with the same type of property or a recognized appraiser designation.

These education and experience requirements apply to contributions made on or after January 1, 2019.

 

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MELISSA BLASCHKA
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