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TAX TALK: Tax Deduction for Different Types of Charitable Donations

Posted by Hal Zemel, CPA, J.D., LL.M. on Feb 29, 2016 7:00:00 AM
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When you donate property to charity, the income tax deduction that you are entitled to depends on the type of property you give and the type of organization to which you give the property. The following discussion highlights the tax deduction available for the contribution of various types of property given to a public charity (there are separate rules that may apply for gifts to private foundations):

Cash. This includes not just actual cash but gifts made by check, credit card or payroll deduction. Your donation will equal the amount of the cash given.

Ordinary-income property. Examples include stocks and bonds held one year or less, inventory, and property subject to depreciation recapture. Your donation will generally equal the lower of the fair market value of the property or your tax basis of the property.

Long-term capital gains property. For example, your donation of stocks and bonds held more than one year will generally equal the current fair market value.

Tangible personal property.  The amount of your donation depends on the situation:

  • If the property isn’t related to the charity’s tax-exempt function (such as an antique donated for a charity auction), your donation is limited to your basis.
  • If the property is related to the charity’s tax-exempt function (such as an antique donated to a museum for its collection), you can value the donation at the fair market value.

Vehicle. Unless it’s being used by the charity, you generally value the donation based on the amount the charity receives when it sells the vehicle.

The following will not qualify for a charitable deduction:

Use of property. Examples include use of a vacation home and a loan of artwork. Generally, you receive no deduction because it isn’t considered a completed gift.

Services. You may deduct only your out-of-pocket expenses, not the fair market value of your services. You can deduct 14 cents per charitable mile driven.

After determining the amount of the donation, the portion that is deductible is based on certain limitations based on your adjusted gross income (“AGI”). The portion of your donation that is limited by your AGI may be carried over to the next succeeding 5 years. If you receive any benefit back from the charity, your deduction must be reduced by the benefit’s value. Various substantiation requirements also apply. If you have questions about how much you can deduct, contact me at hzemel@berdonllp.com or your Berdon advisor.

Hal Zemel, a Tax Principal at Berdon LLP, has more than 20 years in public accounting and advises businesses in the real estate, service, and manufacturing sectors.

Topics: TAX TALK

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