Chapter 25 Contributions
Americans give billions of dollars to charity each year. One explanation for that generosity may be that the federal government encourages charitable giving. It has long been the policy of the government to allow individuals tax deductions for charitable contributions they make. In effect, by allowing a deduction that reduces your taxable income (and therefore your tax), Uncle Sam is contributing part of every dollar you give to charity.
Even so, there are lots of rules governing charitable contributions, and it’s important that you know them. This chapter tells you how to maximize your allowable charitable deductions and minimize your taxes. You’ll learn why, for example, you might want to consider giving shares of stock instead of cash to your favorite charity. Just as important, the chapter tells you how to document your contributions.
In general, the amount you can deduct for charitable contributions cannot be more than 50% of your adjusted gross income (AGI). Your deduction may be further limited to 30% or even 20% of your AGI, depending on the type of property you give and the type of organization you give it to. If your total contributions for the year are 20% or less of your AGI, these limits do not apply to you. This chapter discusses these limits.
After applying the specific limitations on charitable contributions described in the paragraph above, your deductible contributions may be further reduced by additional “overall” limitation on a specific group of itemized deductions that include charitable contributions. The total of this group of itemized deductions must be reduced by 3% of the amount of your AGI in excess of $254,200 for individual filers, $279,650 for heads of households, $305,050 if married filing jointly or a surviving spouse, and $152,520 if married filing separately. (The threshold amounts are indexed annually for inflation.) However, no more than 80% of the otherwise allowable deductions are phased out. See chapter 30, Limit on Itemized Deductions, for more information.
Contributions of property. If you have capital gain property that you’ve held for more than a year, and you want to make a charitable contribution, you’re usually better off donating that property rather than cash. That’s because you get a market value deduction for capital gain property and you don’t have to recognize any gain as income. You can always use the cash to buy back the property with a higher basis. See later in this chapter. Giving Property That Has Increased in Value,
Donating a used car to charity. If you donate a used car to charity, you should remember that the amount of the deduction you will be allowed to claim may be subject to special limitations. For cars worth over $500, the deduction will be the amount for which the charity actually sells the car, if it sells the car without materially improving it or using it in its operations. So in many cases, you won’t know the amount of your deduction until the charity has sold the car and reported the sale proceeds to you.
Contributions of time. You can’t deduct the value of the time you contribute to charity but you can deduct any out-of-pocket expenses you incurred as a result of your volunteering, such as mileage or the cost of uniforms. See later in this chapter. Out-of-Pocket Expenses in Giving Services,
Substantiating your charitable contributions. Properly substantiating charitable contributions is critical—the IRS can, and will, disallow your deduction if you don’t have the necessary documentation. All contributions must be substantiated, but contributions of $250 or more require a written receipt from the charity that meets specific requirements. A deduction for a cash contribution of any amount to charity will not be allowed unless the donor has a bank record or a receipt or a written communication from the charitable organization that shows the name of the charity, as well as the date and the amount of the contribution. Maintaining your own written log of cash contributions will no longer be sufficient substantiation. If you donate property valued at more than $500, you must file Form 8283.
Expired provisions. The following provisions have expired and will not apply for 2014:
The special 50% contribution limit for qualified conservation contributions.
The special 100% contribution limit for qualified conservation contributions made by a qualified farmer or rancher.
The adjustment to an S corporation shareholder’s stock basis for charitable contributions of property.
The exclusion from income of qualified charitable distributions made from IRA accounts.
This chapter explains how to claim a deduction for your charitable contributions. It discusses the following topics.
The types of organizations to which you can make deductible charitable contributions.
The types of contributions you can deduct.
How much you can deduct.
What records you must keep.
How to report your charitable contributions.
A charitable contribution is a donation or gift to, or for the use of, a qualified organization. It is voluntary and is made without getting, or expecting to get, anything of equal value.
Form 1040 required. To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A. The amount of your deduction may be limited if certain rules and limits explained in this chapter apply to you. The limits are explained in detail in Publication 526.
You may want to See:
526 Charitable Contributions
561 Determining the Value of Donated Property
Schedule A (Form 1040) Itemized Deductions
8283 Noncash Charitable Contributions
You can deduct your contributions only if you make them to a qualified organization. Most organizations other than churches and governments must apply to the IRS to become a qualified organization.
How to check whether an organization can receive deductible charitable contributions. You can ask any organization whether it is a qualified organization, and most will be able to tell you. Or go to . Click on “Tools” and then on “Exempt Organizations Select Check” ( IRS.gov ). This online tool will enable you to search for qualified organizations. You can also call the IRS to find out if an organization is qualified. Call 1-877-829-5500. People who are deaf, hard of hearing, or have a speech disability and who have access to TTY/TDD equipment can call 1-800-829-4059. Deaf or hard of hearing individuals can also contact the IRS through relay services such as the Federal Relay Service at www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check . www.gsa.gov/fedrelay
Generally, only the following types of organizations can be qualified organizations.
A community chest, corporation, trust, fund, or foundation organized or created in or under the laws of the United States, any state, the District of Columbia, or any possession of the United States (including Puerto Rico). It must, however, be organized and operated only for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. Certain organizations that foster national or international amateur sports competition also qualify.
War veterans’ organizations, including posts, auxiliaries, trusts, or foundations, organized in the United States or any of its possessions (including Puerto Rico).
Domestic fraternal societies, orders, and associations operating under the lodge system. (Your contribution to this type of organization is deductible only if it is to be used solely for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals.)
Certain nonprofit cemetery companies or corporations. (Your contribution to this type of organization is not deductible if it can be used for the care of a specific lot or mausoleum crypt.)
The United States or any state, the District of Columbia, a U.S. possession (including Puerto Rico), a political subdivision of a state or U.S. possession, or an Indian tribal government or any of its subdivisions that perform substantial government functions. (Your contribution to this type of organization is only deductible if it is to be used solely for public purposes.)
Examples. The following list gives some examples of qualified organizations.
Churches, a convention or association of churches, temples, synagogues, mosques, and other religious organizations.
Most nonprofit charitable organizations such as the American Red Cross and the United Way.
Most nonprofit educational organizations, including the Boy Scouts of America, Girl Scouts of America, colleges, and museums. This also includes nonprofit daycare centers that provide childcare to the general public if substantially all the childcare is provided to enable parents and guardians to be gainfully employed. However, if your contribution is a substitute for tuition or other enrollment fee, it is not deductible as a charitable contribution, as explained later under . Contributions You Cannot Deduct
Nonprofit hospitals and medical research organizations.
Utility company emergency energy programs, if the utility company is an agent for a charitable organization that assists individuals with emergency energy needs.
Nonprofit volunteer fire companies.
Nonprofit organizations that develop and maintain public parks and recreation facilities.
Civil defense organizations.
Certain foreign charitable organizations. Under income tax treaties with Canada, Israel, and Mexico, you may be able to deduct contributions to certain Canadian, Israeli, or Mexican charitable organizations. Generally, you must have income from sources in that country. For additional information on the deduction of contributions to Canadian charities, See Publication 597, Information on the United States–Canada Income Tax Treaty. If you need more information on how to figure your contribution to Mexican and Israeli charities, See Publication 526.
Generally, you can deduct contributions of money or property you make to, or for the use of, a qualified organization. A contribution is “for the use of” a qualified organization when it is held in a legally enforceable trust for the qualified organization or in a similar legal arrangement. The contributions must be made to a qualified organization and not set aside for use by a specific person.
If you give property to a qualified organization, you generally can deduct the fair market value of the property at the time of the contribution. See , later in this chapter. Contributions of Property
Your deduction for charitable contributions generally cannot be more than 50% of your adjusted gross income (AGI), but in some cases 20% and 30% limits may apply. See , later. Limits on Deductions
In addition, the total of your charitable contribution deduction and certain other itemized deductions may be limited. See chapter 30.
Table 25-1 gives examples of contributions you can and cannot deduct.
. Examples of Charitable Contributions—A Quick Check Table 25-1
Use the following lists for a quick check of whether you can deduct a contribution. See the rest of this chapter for more information and additional rules and limits that may apply.
Deductible As Charitable Contributions
Not Deductible As Charitable Contributions
Money or property you give to:
Churches, synagogues, temples, mosques, and other religious organizations
Federal, state, and local governments, if your contribution is solely for public purposes (for example, a gift to reduce the public debt or maintain a public park)
Nonprofit schools and hospitals
The Salvation Army, American Red Cross, CARE, Goodwill Industries, United Way, Boy Scouts of America, Girl Scouts of America, Boys and Girls Clubs of America, etc.
War veterans groups
Expenses paid for a student living with you, sponsored by a qualified organization
Out-of-pocket expenses when you serve a qualified organization as a volunteer
Money or property you give to:
Civic leagues, social and sports clubs, labor unions, and chambers of commerce
Foreign organizations (except certain Canadian, Israeli, and Mexican charities)
Groups that are run for personal profit
Groups whose purpose is to lobby for law changes
Political groups or candidates for public office
Cost of raffle, bingo, or lottery tickets
Dues, fees, or bills paid to country clubs, lodges, fraternal orders, or similar groups
Value of your time or services
Value of blood given to a blood bank
Determining fair market value. A valuable tool for determining fair market value is IRS Publication 561, Determining the Value of Donated Property. The publication helps donors and appraisers determine the value of property given to qualified organizations and includes the kind of information you must have to support the charitable deduction you claim on your return.
A sale or purchase of similar property reasonably close to the date of your contribution is usually the best indication of fair market value. Replacement cost and opinions of experts are also valid methods for determining value.
IRS Publication 561 discusses pitfalls to be avoided in determining the value of donated property. Some pitfalls and how to avoid them are the following:
The best evidence of fair market value depends on actual transactions, not on some artificial estimate.
Do not consider unexpected events occurring after your donation of property in making the valuation. Generally, you should only consider facts known at the time of the gift.
Past events are not necessarily reliable in predicting future earnings and fair market value. For example, a taxpayer contributes all rights in a patent to a charitable organization. The patent has a history of high earnings, but the current trend reflects declining earnings. In this case, more emphasis should be placed on the earnings trend rather than on the earnings history.
The cost of an appraisal is not deductible as a charitable contribution, but it may be claimed as a miscellaneous itemized deduction.
A description of property for which a deduction of more than $500 is claimed must be attached to your return along with Form 8283. Additionally, you are required to obtain a qualified appraisal for certain noncash donations. A qualified appraisal must be made by an independent party. The charity or any person or entity related to the charity cannot render the appraisal. Appraisals are required for the donation of property with a claimed value in excess of $5,000. If you make gifts of two or more items of similar property during the year, the claimed value of all of those items will be added together in determining whether the $5,000 limit is exceeded. For contributions of property in excess of $500,000 the appraisal must be attached to your return.
The appraisal may not be made by the organization receiving the gift, the party from whom the taxpayer acquired the property, the taxpayer, or certain persons related to any of these persons.
The appraisal fee cannot be based on a percentage of the appraised value of the gift.
Form 8283, containing an acknowledgment of receipt of the property by the receiving organization and a certification by the appraiser, must be filed with the tax return on which the deduction is taken.
Special Rules and Limitations: The appraisal rules may be different for certain types of property. In general, the above appraisal rules do not apply to contributions of intellectual property (e.g., patents, copyrights, trademarks, etc.), certain stock in trade or inventory held for sale in the normal course of business, publicly traded securities, and certain “qualified vehicles” (i.e., motor vehicles, boats, and airplanes).
Under the American Jobs Creation Act of 2004 and under guidance issued by the IRS in 2005, donations of vehicles are subject to additional requirements and limitations. In general, to be fully deductible, the charity must either (1) use the vehicle in a significant way in performing its regularly conducted activities (known as “significant intervening use”), (2) materially improve the vehicle’s condition (e.g., through major repairs that significantly increase the vehicle’s value—minor repairs, routine maintenance, and cleaning are not considered material improvements), or (3) give or sell the vehicle to a needy individual for a price significantly below its fair market value (FMV) in furtherance of the organization’s charitable purpose of relieving the poor, distressed, or underprivileged who are in need of transportation. If the charity sells the vehicle without any significant intervening use or material improvement, the deduction cannot exceed the gross proceeds received by the charity from the sale. In other words, if the charity sells the vehicle, your deduction will be limited to its sales proceeds.
You can’t take a deduction of more than $500 for a contribution of a motor vehicle, boat, or airplane unless it is substantiated by a contemporaneous (i.e., within 30 days of the contribution, or sale if the vehicle is sold) written acknowledgment by the charity receiving the gift which contains:
The name and taxpayer identification number of the donor,
The vehicle identification number or similar number, and
Certification of use in one of the following forms:
If the vehicle is to be used or improved by the charity: a certification of the intended use or material improvement of the vehicle and the intended duration of the use, and a certification that the vehicle will not be sold before the completion of such use or improvement.
If the vehicle is sold without intervening use or improvement: a certification that the vehicle was sold in an arm’s-length transaction between unrelated parties, the gross proceeds from the sale, and a statement that the deductible amount may not exceed the amount of such gross proceeds.
If the vehicle is given or sold to a needy individual for a price significantly below its FMV: a certification that the vehicle was given or sold to a needy individual at a price significantly below its FMV in furtherance of the organization’s charitable purpose of relieving the poor, distressed, or underprivileged who are in need of transportation.
The charity will use Form 1098-C for this purpose.
Example 1. As part of its regularly conducted activities, an organization delivers meals to needy individuals. The use requirement would be met if the organization actually used a donated qualified vehicle to deliver food to the needy. Use of the vehicle to deliver meals substantially furthers a regularly conducted activity of the organization. However, the use also must be significant, which depends on the nature, extent, and frequency of the use. If the organization used the vehicle only once or a few times to deliver meals, the use would not be considered significant. If the organization used the vehicle to deliver meals every day for one year, the use would be considered significant. If the organization drove the vehicle 10,000 miles while delivering meals, such use likely would be considered significant. However, use of a vehicle in such an activity for one week or for several hundreds of miles generally would not be considered a significant use.
Example 2. An organization uses a donated qualified vehicle to transport its volunteers. The use would not be significant merely because a volunteer used the vehicle over a brief period of time to drive to or from the organization’s premises. On the other hand, if at the time the organization accepts the contribution of a qualified vehicle, the organization intends to use the vehicle as a regular and ongoing means of transport for volunteers of the organization, and such vehicle is so used, then the significant use test likely would be met.
Example 3. The following example is a general illustration of the provision. A taxpayer makes a charitable contribution of a used automobile in good running condition and that needs no immediate repairs to a charitable organization that operates an elder care facility. The charitable organization accepts the vehicle and immediately provides the donor a written acknowledgment containing the name and TIN of the donor, the vehicle identification number, a certification that it intends to retain the vehicle for a year or longer to transport the facility’s residents to community and social events and deliver meals to the needy, and a certification that the vehicle will not be transferred in exchange for money, other property, or services before completion of such use by the organization. A few days after receiving the vehicle, the charitable organization commences to use the vehicle three times a week to transport some of its residents to various community events, and twice a week to deliver food to needy individuals. The organization continues to regularly use the vehicle for these purposes for approximately one year and then sells the vehicle. Under the provision, the charity’s use of the vehicle constitutes a significant intervening use prior to the sale by the organization, and the donor’s deduction is not limited to the gross proceeds received by the organization.
Due to the inherent difficulties in valuing intellectual property, such as patents, copyrights, trademarks, trade names, trade secrets, know-how, software, similar property, or applications or registrations of such property, the American Jobs Creation Act of 2004 contained significant revisions to the rules for deducting contributions of intellectual property, effective for contributions made after June 3, 2004. Under these rules, the deduction for a contribution of intellectual property is generally limited to the lesser of the taxpayer’s basis in the property or the fair market value of the property.
Further, you would be allowed to deduct additional amounts in the year of contribution or in subsequent tax years based on a specified percentage of the “qualified donee income” received or accrued by the charitable recipient for the contributed property. Qualified donee income is only the income properly allocable to the intellectual property itself, rather than to the activity in which such property is used.
If you make a qualified intellectual property contribution, the deduction allowed for each tax year ending on or after the date of the contribution is increased by the applicable percentage of qualified income for the contribution that is properly allocable to that year. The amount of the additional deduction allowed per year phases out over the 12 years following the contribution.
The calculation of the charitable contribution deduction is very complex. You should consult your tax advisor if you’re considering donating intellectual property to charity.
If you receive a benefit as a result of making a contribution to a qualified organization, you can deduct only the amount of your contribution that is more than the value of the benefit you receive. Also See under Contributions From Which You Benefit Contributions You Cannot Deduct, later.
If you pay more than fair market value to a qualified organization for goods or services, the excess may be a charitable contribution. For the excess amount to qualify, you must pay it with the intent to make a charitable contribution.
Example 1. You pay $65 for a ticket to a dinner-dance at a church. Your entire $65 payment goes to the church. The ticket to the dinner-dance has a fair market value of $25. When you buy your ticket, you know that its value is less than your payment. To figure the amount of your charitable contribution, subtract the value of the benefit you receive ($25) from your total payment ($65). You can deduct $40 as a contribution to the church.
Example 2. At a fundraising auction conducted by a charity, you pay $600 for a week’s stay at a beach house. The amount you pay is no more than the fair rental value. You have not made a deductible charitable contribution.
Athletic events. If you make a payment to, or for the benefit of, a college or university and, as a result, you receive the right to buy tickets to an athletic event in the athletic stadium of the college or university, you can deduct 80% of the payment as a charitable contribution.
If any part of your payment is for tickets (rather than the right to buy tickets), that part is not deductible. Subtract the price of the tickets from your payment. You can deduct 80% of the remaining amount as a charitable contribution.
Example 1. You pay $300 a year for membership in a university’s athletic scholarship program. The only benefit of membership is that you have the right to buy one season ticket for a seat in a designated area of the stadium at the university’s home football games. You can deduct $240 (80% of $300) as a charitable contribution.
Example 2. The facts are the same as in Example 1 except your $300 payment includes the purchase of one season ticket for the stated ticket price of $120. You must subtract the usual price of a ticket ($120) from your $300 payment. The result is $180. Your deductible charitable contribution is $144 (80% of $180).
Charity benefit events. If you pay a qualified organization more than fair market value for the right to attend a charity ball, banquet, show, sporting event, or other benefit event, you can deduct only the amount that is more than the value of the privileges or other benefits you receive.
If there is an established charge for the event, that charge is the value of your benefit. If there is no established charge, the reasonable value of the right to attend the event is the value of your benefit. Whether you use the tickets or other privileges has no effect on the amount you can deduct. However, if you return the ticket to the qualified organization for resale, you can deduct the entire amount you paid for the ticket.
Example. You pay $40 to See a special showing of a movie for the benefit of a qualified organization. Printed on the ticket is “Contribution—$40.” If the regular price for the movie is $8, your contribution is $32 ($40 payment – $8 regular price).
The IRS requires that charities determine the fair market value of benefits offered in exchange for contributions in advance of the solicitation and state in the solicitation, as well as in the receipt, tickets, or other documents, what portion of the contribution is deductible. The charity may advise donors that the full amount of a contribution is deductible if any of the following applies:
The fair market value of all the benefits received in conjunction with the contribution is not more than the lesser of 2% of the payment or $102 in 2014.
The contribution is at least $51 in 2014, and the only benefits received in connection with the payment are token items, such as bookmarks, calendars, key chains, mugs, posters, and T-shirts bearing the organization’s name or logo (i.e., low-cost articles with a cost not in excess of $10.20 in 2014).
The charity distributes unordered items to patrons. The distributed item must be accompanied by a request for a contribution and by a statement that the item can be retained whether or not a contribution is made. The aggregate cost per patron of these items cannot exceed $10.20 in 2014.
In 2014, a nonprofit broadcast organization sends its patrons a listener’s guide for 1 year in return for a contribution of $51 or more. The cost of the production and distribution of the listener’s guide is $9 per year per patron, and its fair market value is $11. The listener’s guide is not available to nonmembers by paid subscription or through newsstand sales. Because the cost of the listener’s guide is $9 and it is received in return for a contribution of $51 or more, the broadcast organization may advise its patrons that the full amount of the payment is a deductible contribution. However, if the cost of the publication exceeds $10.20, the charitable organization would be required to inform its patrons of the amount by which they should reduce their charitable deductions.
Membership fees or dues. You may be able to deduct membership fees or dues you pay to a qualified organization. However, you can deduct only the amount that is more than the value of the benefits you receive.
You cannot deduct dues, fees, or assessments paid to country clubs and other social organizations. They are not qualified organizations.
Certain membership benefits can be disregarded. Both you and the organization can disregard the following membership benefits if you receive them in return for an annual payment of $75 or less.
Any rights or privileges, other than those discussed under , earlier, that you can use frequently while you are a member, such as: Athletic events
Free or discounted admission to the organization’s facilities or events,
Free or discounted parking,
Preferred access to goods or services, and
Discounts on the purchase of goods and services.
Admission, while you are a member, to events open only to members of the organization, if the organization reasonably projects that the cost per person (excluding any allocated overhead) is not more than $10.20.
Token items. You do not have to reduce your contribution by the value of any benefit you receive if both of the following are true.
You receive only a small item or other benefit of token value.
The qualified organization correctly determines that the value of the item or benefit you received is not substantial and informs you that you can deduct your payment in full.
Written statement. A qualified organization must give you a written statement if you make a payment of more than $75 that is partly a contribution and partly for goods or services. The statement must say that you can deduct only the amount of your payment that is more than the value of the goods or services you received. It must also give you a good faith estimate of the value of those goods or services.
The organization can give you the statement either when it solicits or when it receives the payment from you.
Exception. An organization will not have to give you this statement if one of the following is true.
The organization is:
A governmental organization described in (5) under , earlier, or Types of Qualified Organizations
An organization formed only for religious purposes, and the only benefit you receive is an intangible religious benefit (such as admission to a religious ceremony) that generally is not sold in commercial transactions outside the donative context.
You receive only items whose value is not substantial as described under , earlier. Token items
You receive only membership benefits that can be disregarded, as described earlier.
You may be able to deduct some expenses of having a student live with you. You can deduct qualifying expenses for a foreign or American student who:
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