Tax deductions for charitable contributions

Elizabeth Rosen
by Elizabeth Rosen, Contributor

 

In general, cash and property donations to qualified charitable organizations are deductible on your individual income tax return. You may also carry forward excess tax deductions for 5 years.

However, if you receive something back in exchange for your donation (such as an item or service), you must reduce your tax deduction by the value of that item/service. For instance, say you donate $150 to a qualified charity and you receive a “gift” book that is worth $30 ― the amount of your total charitable tax deduction would be $120.

The Pension Protection Act of 2006 changed some rules for charitable tax deductions:

Cash Contributions: To validate donations of cash/money, taxpayers must provide bank records or written acknowledgement from the charity, specifying the date of the donation, the amount of the donation, and the name of the charity.

Noncash Contributions (clothing and household items): Noncash donations need to be in “good” condition. For donations over $500, additional information must be provided on the individual’s federal tax return. For noncash donations over $5,000 (not including publicly traded securities) and nonpublic stock worth over $10,000, certified appraisals are required.

The value of your time and/or services cannot be claimed as a charitable deduction. However, there are certain “out-of-pocket” expenses that may be tax deductible ― such as $0.14 per mile for charitable travel.

The total charitable deduction on your tax return cannot be more than 50% of your AGI (adjusted gross income). Charitable contributions may be claimed on lines 16-19 of IRS Tax Form 1040, Schedule A.

Tax Deductions for Charitable Donations of Property

Donating appreciated property to charity is an often overlooked tax strategy. It allows taxpayers to deduct donated property that would otherwise be subject to capital gains tax.

Your property is appraised for tax deduction at its current market value, not what you originally paid for it. If a wise investment of yours has appreciated in value, and you are willing to part with it for a worthy cause, this is a good option.

If the value of your donated property has depreciated, consider selling it and giving the proceeds to a charitable organization rather than donating the property directly. That way, you can deduct your initial capital loss and deduct the property a second time as a charitable contribution. (Otherwise you can only deduct this property once ― at its fair market value, when you donate it ― and you will not be able to deduct the difference between its current, lowered value and what you originally paid for it.)

In general, you cannot deduct more than 50% of your MAGI (modified adjusted gross income) in tax donations. When it comes to donating appreciated assets, this percentage drops to 30%. There are exceptions, such as a charity auction, where you can donate land or other appreciated property (such as stocks or bonds) and deduct these contributions at full fair market value ― even if they exceed 50% of your gross income that year. You may also deduct appraisal fees to find out the value of your charitable contribution.

Tax Deductions for Vehicle Donations to Charity

Got a clunker taking up space in your garage? Donating it to charity may or may not be a smart tax move, depending on the value of the car and what the charity does with it.

Before 2004, charitable drivers could look at a reliable source, such as the Kelley Blue Book, to find a car’s estimated value and deduct that amount on their tax return. But after a Treasury report found that many taxpayers were overvaluing their old cars, a $500 limit was placed on tax deductions for most donated vehicles.

A car can, however, be deducted for what the charity sells it for, which may be more than $500. But keep in mind that the price a not-for-profit charity is able to net for your car will likely be well below what the Blue Book says it’s worth.

Don’t forget to ask for receipts. You will be required to provide proof of the sale within 30 days of when it takes place, and proof of your contribution within 30 days of when you donate the car.

If a charity uses your vehicle for their own purposes (such as a local Goodwill using your van to pick up donations) and eventually sells it, and is able to provide proof of its use in the meantime, you may be able to deduct the vehicle’s original value rather than its lower sale price.

Make sure that any charities you donate to for tax purposes have 501(c)(3) tax status with the IRS, and keep in mind that you must file an itemized deduction (using Tax Form 1040, Schedule A) rather than a standard deduction.

All in all, if you have a vehicle with significant resale value, you may be better off trying to get cash for it than going through all the steps necessary to correctly write it off your taxes. But if you’re more interested in a tax break than fixing those brakes, it may be time to contribute your car to your favorite cause.