United States: All Charitable Deductions Are Not Created Equal

Last Updated: October 3 2017
Article by Jim Quaid

With the end of the year approaching, your supporters may be thinking about making charitable contributions they can deduct on their 2017 federal tax returns. Here is some information your supporters may find helpful when thinking about different types of donations, some of which are not tax deductible at all.

What Can Be Deducted?

Generally, donors can deduct contributions of money or property. The amount of the allowable deduction varies based on the type of property donated:

  • Cash
    Cash donations are 100% deductible, including donations made by check, credit card or payroll deduction.
  • Ordinary Income Property
    Donations of this type are generally limited to the donor's tax basis in the property, which is the amount the donor paid for the property. Specifically, donors can deduct the property's fair market value (FMV) from the amount that would be ordinary income or short-term capital gains if they sold the property at FMV. Property is considered ordinary income property when the donor recognizes ordinary income or short-term capital gains if he or she sold it at FMV on the date of donation. Examples include inventory, donor-created works of art and capital assets (such as stocks and bonds) held for one year or less.
  • Capital Gains Property
    Donors of capital gains property can usually deduct the property's FMV. Property is considered capital gains property if the donor would have recognized long-term capital gains had he or she sold it at FMV on the date of donation. This includes capital assets held longer than one year. But there are certain situations where only the donor's tax basis of the property may be deducted, such as when the donation is intellectual property (such as a patent or copyright) or certain taxidermy property.
  • Tangible Personal Property
    Property that can be seen or touched is known as tangible personal property, such as furniture, books, jewelry and paintings. If your organization uses the donated property for its programs, such as a museum displaying a donated painting, the donor can deduct the property's FMV. However, if the property is not used for the organization's programs or is sold by the organization, the deduction is limited to the donor's basis in the property.
  • Vehicles
    Generally, if a vehicle has a FMV greater than $500, the donor can deduct the lesser of the gross proceeds from its sale by the organization or the FMV on the date of donation. However, if the organization uses the vehicle to carry out its programs, such as an animal care organization utilizing a donated van to transport rescued animals, the donor can deduct the FMV of the property. The organization must provide Form 1098-C to the donor, which he or she will need to attach to their tax return.
  • Use of Property or Services
    You may have a board member who donates a one-week stay at his vacation home to be used as an item for an upcoming auction. Unfortunately, the right to use property is considered a contribution of less than the donor's entire interest in the property and therefore does not qualify as a deduction. Generally, only donations of the full ownership interest in property are deductible. There are some situations in which a donor can receive a deduction for a partial-interest donation, such as with a qualified conservation easement.

Similarly, you may have a board member who donates her time providing investment planning services for the organization. Donation of time and services are not deductible as contributions. However, the donor may deduct any out-of-pocket costs, including miles driven for charitable purposes (14 cents per mile).

Other Limits

In addition to the limits discussed above, there are limits to the amount a taxpayer can claim as charitable deductions in any given year. A taxpayer's total charitable deduction generally cannot exceed 50% of his or her adjusted gross income (AGI). A higher limit applies for certain qualified conservation contributions. Additionally, donations of capital gains property are generally limited to 30% of AGI.

Furthermore, deductions for contributions to certain private foundations, veterans' organizations, fraternal societies and cemeteries are limited to 30% of AGI. Donations of capital gains property to such organizations are limited to 20% of AGI.

In addition to being concerned with your supporters, your charitable organization should be concerned with the types of gifts it is willing to accept. As a matter of best practice, the organization should adopt a written gift acceptance policy that documents the type and manner of acceptable donated gifts.

There are many different types of donations that your supporters may be considering, and the general information above may be helpful to determine what type of donation to make. However, this article is meant to provide only general information and is not considered tax advice. If your supporters have any questions regarding their personal circumstances, we recommend they consult with their professional accountant for individual tax advice and guidance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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