CHAPTER 6
Charitable Giving

Americans are very generous people. Aside from the good feeling you get from following your philanthropic nature, the tax laws reward you for making donations. Americans donated $484.85 billion to charities in 2021 (according to estimates by Giving USA 2022) and about 25% did volunteer work for charities.

This chapter covers the basic rules for claiming charitable contribution deductions, including the limits on different types of contributions and the substantiation required to support the deductions. This chapter also contains a record keeper that you can use to track your cash contributions throughout the year.

For more information, see IRS Publication 526, Charitable Contributions; IRS Publication 561, Determining the Value of Donated Property; IRS Publication 1771, Charitable Contributions—Substantiation and Disclosure Requirements; IRS Publication 3833, Disaster Relief: Providing Assistance through Charitable Organizations; and IRS Publication 4303, A Donor's Guide to Vehicle Donations.

Cash Donations

Donations by cash, check, or credit card to charities or government bodies are deductible within set limits if certain conditions are met. The impact of this deduction is that Uncle Sam becomes your partner in making contributions. For example, if you are in the 32% tax bracket, the government is effectively making almost ⅓ of your contribution through the tax savings you enjoy from the donation.

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You can deduct the cash donations you make to public charities, private foundations other than nonoperating private foundations, and the government. You can annually write off your cash donations up to 60% of your adjusted gross income (AGI), if you itemize your deductions. In 2021, there had been a limited deduction for cash contributions by non‐itemizers. This tax break may be extended for 2022; check the Supplement for any update.

For those who itemize, donations made in prior years in excess of percentage cap based on your AGI can be carried forward for up to 5 years.

Conditions

To claim a deduction for your cash contributions to charity, you must meet all 3 conditions:

  1. Donations must be made to a qualified charity.
  2. You cannot deduct donations exceeding 60% of your adjusted gross income (check the Supplement for whether a deduction for non‐itemizers applies; there may be no AGI limits)
  3. You must have proof of your donations.

QUALIFIED CHARITY

Just because a charity calls itself one does not mean it is tax‐qualified; it must receive IRS approval to be a tax‐exempt organization to which contributions are tax deductible. The charity must be a domestic nonprofit organization, trust, community chest, fund, or foundation that is operated exclusively for one of the following purposes:

  • Charitable purposes
  • Fostering amateur sports competition
  • Prevention of cruelty to children or animals
  • Religious purposes
  • Scientific, literary, and educational purposes

Other organizations or places to which you can make tax‐deductible contributions are:

  • Domestic fraternal groups operating under a lodge system
  • Domestic nonprofit veterans' organizations or auxiliary units
  • Legal services corporations set up under the Legal Services Corporation Act
  • Nonprofit cemetery and burial companies (as long as voluntary contributions benefit the whole cemetery and not merely your plot)
  • U.S. government; government of a U.S. possession, state, city, or town; or Indian tribal government

Certain well‐known charities, such as the American Red Cross, the United Way, the Boy Scouts and Girl Scouts, and the Salvation Army, are clearly authorized to accept tax‐deductible contributions. Some charities may be less known, and the IRS warns taxpayers to beware of scams that pop up following disasters, such as the COVID‐19 pandemic and the Surfside building collapse. If you have any question about an organization's status, ask about its status or check with the IRS, which maintains an online database in IRS Publication 78, Cumulative List of Organizations, at www.irs.gov/charities-non-profits/exempt-organizations-select-check.

Once you determine that an organization is eligible to receive a tax‐deductible contribution, you may want to check whether the organization is worthy. You can see how much of your contribution goes to the purpose you intend versus being used for administrative costs (e.g., advertising, salaries) of the organization at Charity Navigator at www.charitynavigator.org, GuideStar at www.guidestar.org, or Better Business Bureau Give.org at www.give.org.

AGI LIMIT

Your deduction if itemizing is limited to 60% of your adjusted gross income (AGI), a tax concept explained more thoroughly in the introduction to this book after taking into account all other charitable contributions for the year.

Note: There are some organizations to which donations are limited to 30%, but this is not the usual case. To find out more about so‐called “30% charities,” see IRS Publication 526, Charitable Contributions, at www.irs.gov.

DEDUCTION FOR NON‐ITEMIZERS

In 2021, if you claimed the standard deduction instead of itemizing, you could deduct charitable contributions made up to $300. The limit applied per taxpayer, so joint filers could deduct up to $600. It applied only to cash donations. Check the Supplement to see whether this deduction for non‐itemizers has been extended for 2022.

SUBSTANTIATION

You must have proof of your donations in the event your return is questioned. The tax law is very specific about the type of proof (called substantiation in the tax law) that is recognized by the IRS.

Donations in any amount must be substantiated by a written acknowledgment from the charity or a bank statement. Formerly, you may have deducted cash donations to the weekly collection plate or the Salvation Army's red kettle during holiday time; such unsubstantiated donations are no longer allowed. Organizations that accept weekly cash donations may make arrangements to substantiate these donations, such as providing you with a monthly acknowledgment of total donations for the period.

Charitable donations through payroll deductions are treated as substantiated by a variety of means, including pay stubs, W‐2 forms, or other written statements from an employer.

If the donation is more than $75, get a disclosure statement from the charity stating the value of any benefit received from the organization. Donations of $250 or more require a written acknowledgment from the charity; a canceled check is not enough proof in this case. More details on this statement may be found later in this chapter.

EXAMPLES OF DEDUCTIBLE CONTRIBUTIONS

  • Checks payable to charity
  • Collection plate contributions substantiated by the charity
  • Credit card donations
  • Rebates applied through credit card programs
  • Withholding from wages for charitable purposes
  • License plate fee above the normal plate cost if the state gives the extra amount to a qualified charity
  • Voluntary contributions to a qualified charity made in the space provided on your state income tax return (you effectively make the donation by increasing your state income tax payment or reducing your state income tax refund)

Planning Tips

You can use the record keeper at the end of this chapter to track your total distributions for the year. Be sure to obtain substantiation for all donations.

TIMING ISSUES

You can deduct contributions made up to the last day of the year. In making year‐end contributions, keep these points in mind:

  • Contributions by credit card are deductible in the year you charge them, not in the year you pay your credit card bill. If you charge the gift by December 31, 2022, it is deductible in 2022 even though you pay the credit card company in 2023.
  • Contributions by check that are mailed before December 31 are deductible in the year of mailing even though the charity receives the check and cashes it in the following year.
  • A pledge to make a charitable contribution is not deductible until you pay the pledge.
  • Contributions made through a pay‐by‐phone bank account are not deductible when you make the call but rather as of the payment date on the bank statement.

If you have not received a written acknowledgment from the charity by the deadline for filing your return, obtain a filing extension. This will allow you to meet substantiation requirements.

AGI PLANNING

Generally, tax planning dictates that you try to reduce your adjusted gross income to boost your deduction for medical expenses as well as eligibility for certain exclusions and credits. But if you make sizable donations and itemize your deductions, you may not want or need to adopt strategies to reduce your AGI. By claiming your charitable deduction, you effectively reduce or eliminate the tax on your income.

Pitfalls

Despite your generous nature and good intentions, you can easily slip up on technicalities that can prevent you from claiming a deduction. For example, an owner of a nationally well‐known tax preparation company donated stock to charity. Since the value of the donation was never in question, he never bothered to obtain a qualified appraisal as required by the tax law. This tax‐savvy taxpayer lost out on a sizable deduction for his stock donation because he overlooked a basic requirement for claiming it and the IRS caught him.

NONQUALIFIED ORGANIZATIONS

An organization may seem like a charity and still not be one. Don't assume that a hospital or school is automatically qualified to accept deductible donations. If it is operated for profit, your contributions are not deductible.

You may not deduct donations to foreign charities unless allowed by international treaties (for example, donations to charities in Mexico and Canada can be deductible). However, a domestic charity set up to distribute funds abroad may be a qualified organization under the rules discussed earlier.

Other organizations that are nonqualified include:

  • Sororities and fraternities.
  • Civic leagues, chambers of commerce, business leagues, or labor unions. However, you may be able to treat contributions to these organizations as deductible business expenses (see Chapter 14).
  • Professional associations of attorneys, doctors, and accountants. However, some unrestricted gifts to state bar associations may be deductible (the bar association reports to you the portion of annual dues treated as charitable contributions).
  • Foreign organizations other than certain Canadian, Israeli, or Mexican charitable organizations.
  • Homeowners' associations.
  • Political organizations and candidates.

OTHER NONDEDUCTIBLE DONATIONS

Those who do not itemize their deductions cannot write off a cash contribution unless Congress extends the rule for non‐itemizers for 2022; see the Supplement for any update.

Even if you itemize, you cannot deduct a donation you make directly to an individual, no matter how worthy the person is. For example, suppose your neighbor's house was severely damaged by a fire and you give your neighbor $1,000 to help him through the days following the fire. Your generosity does not warrant a tax deduction.

You cannot deduct a qualified charitable distribution from your IRA (discussed later in this chapter). You cannot deduct donations made on your behalf that are based on the purchases you make; these charitable contributions are made at no additional cost to you. For example, the 0.5% donations made through AmazonSmile or the donations (3% on average) through iGive based on your purchases are not deductible by you.

If you donate unused frequent flyer miles to Make‐a‐Wish Foundation, you cannot deduct them. According to the charity, frequent flyer miles are “a gift or an award from the corporation to the individual” (which means a taxpayer has no basis in them on which to figure a deductible amount).

EXPIRATION OF CARRYOVER

Unlike other carryovers in the tax law that run indefinitely, the carryover of excess charitable contributions is limited to 5 years. If you have such carryovers, don't let the 5 years expire causing you to waste potential write‐offs. Consider realizing sufficient income to allow you to use up your carryovers.

Where to Claim the Deduction

If you itemize your deductions, report your charitable deduction for your cash donations on Schedule A of Form 1040 or 1040‐SR. If you make only cash donations, you do not need any additional form or schedule other than Schedule A to report your charitable contributions.

Appreciated Property Donations

The government encourages donations of appreciated property held for more than one year by allowing tax deductions at the property's value (rather than limiting them to the donor's cost or other tax basis) as long as certain conditions are met. Even though cuts in the tax rates diminish the value of such contributions from a tax‐savings perspective, philanthropic‐minded individuals can still enjoy considerable tax breaks while benefiting their favorite causes.

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You can claim a charitable contribution deduction and avoid capital gains by donating appreciated property to charity. As long as the property has been held for more than one year, the charity is qualified, and other conditions are met, the donation is based on the property's value.

Donations of appreciated property are limited to 30% of your adjusted gross income for the year, in most cases. Donations in excess of this limit can be carried forward for up to 5 years.

Donations of appreciated property that do not meet the conditions listed next are deductible only to the extent of your cost. In the case of donations of tangible personal property that do not meet the conditions, donations are based on basis (generally, cost) rather than value, but can be claimed up to 60% of your adjusted gross income.

Conditions

To claim a deduction for the value of the property you donate to charity, you must meet all 4 conditions:

  1. The property must be held long‐term (“holding period”).
  2. If the property is tangible personal property, such as artwork, cars, and equipment, the charity must put the property to use in its exempt purpose (“tangible property used in the charity's exempt purpose”).
  3. The property cannot be “ordinary income property” (which is property that would generate ordinary income rather than capital gain if it were sold instead of donated).
  4. You must comply with substantiation requirements.

Remember that donations to only a qualified charity produce a tax deduction for you. Which organizations are qualified charities, and which are not, is discussed earlier in the chapter under “Cash Donations.”

HOLDING PERIOD

To meet the long‐term holding period, you must own the property for more than one year prior to the date of the donation.

TANGIBLE PROPERTY USED IN THE CHARITY EXEMPT PURPOSE

If you give property other than securities or real estate, you are giving tangible personal property. Items commonly donated in this category include works of art, books, antiques, furniture, equipment, and collectibles.

Use of the property in the charity's exempt purpose means that the use serves a function related to the charity's exemption. For example, if you donate art to a school and the school displays the work in the library or school museum so that students can study it, the property is being used in the charity's exempt purpose.

If the charity sells the property you donate, you don't meet the related use test even though the proceeds certainly serve the charity's exempt purpose. The tax law treats the sale as an unrelated purpose (see “Planning Tips” for protection).

PROPERTY IS NOT ORDINARY INCOME PROPERTY

If you donate appreciated property that would produce ordinary income if it were sold rather than donated, you cannot deduct the property's value; your donation is limited to your cost. Examples of ordinary income property include inventory, stock in trade, farm crops, and works of art, books, and memoranda donated by the person who created them. For example, businesses, whether or not incorporated, can claim an enhanced charitable contribution for donations of their food inventory.

SUBSTANTIATION REQUIREMENTS

If the total deduction claimed for your property donations is more than $500, you must attach Form 8283, Noncash Charitable Contributions, to your return.

If you make a donation exceeding $5,000 (one item or a collection), you must obtain a written appraisal for your donation. An appraisal is also required for a donation of used clothing or a household item valued at over $500 that is not in good used condition or better. The appraisal is summarized on the form.

You do not need a written appraisal if the donation is:

  • Publicly traded securities—you simply use the market value on the date of the donation.
  • Nonpublicly traded stock (stock in a private corporation) if valued at $10,000 or less. You do need an appraisal if the value exceeds this amount.

In addition to obtaining the appraisal, the charity must acknowledge on Form 8283 that it received your donation (so leave enough time to obtain this acknowledgment before filing your return).

If you donate art valued at $20,000 or more, you must attach the written appraisal to the return, along with a color photo or slide, if the IRS asks for it.

If you are required by the tax law to obtain an appraisal for your property donation, you must use a qualified appraiser (a person with the right credentials). Obtain the appraisal no earlier than 60 days before you make the donation. You must have the appraisal in hand by the time you file your return (including extensions).

Planning Tips

If you are concerned that the charity may sell the tangible property you donated, which would limit your deduction to your cost, ask the charity for a letter stipulating that it has no immediate intentions of selling. Then your deduction for the value of the property would be protected even if the charity later changes its intentions and sells your donation.

Donations of collectibles can yield even greater tax savings than donations of securities. The reason: Gain on a sale of collectibles is taxed up to 28%, compared with a top 15% (or 20% for those essentially in the top tax bracket) rate of gain from a sale of securities. Donations avoid the capital gains tax entirely.

ELECTION TO CHANGE AGI LIMIT

If you qualify to deduct the market value of your property, you can elect to reduce the gift by its appreciation and instead use a 50% AGI limit (instead of the 30% AGI limit that is usually required). This election makes sense when there is little appreciation on the property, and opting to reduce the deduction by appreciation still gives you a greater write‐off.

You make the election simply by attaching your own statement to your return explaining that you are making the election; no special IRS form or schedule is required. But you can't change your mind later unless your election was based on a material mistake; you can't change your mind simply because you later reconsider the situation and prefer to carry forward the unused deduction that you could have claimed.

IRS APPRAISAL

If you are donating very expensive works of art valued at $50,000 or more, you can protect your deduction from IRS questioning by obtaining an advance valuation of the art from the IRS's Art Advisory Panel. If the IRS agrees to give you this advance valuation, you'll receive an IRS Statement of Value (SOV) that you attach to your return to support your deduction. There is a fee of $7,500 for one to 3 items, and $400 for each additional item, and obtaining an SOV can take as long as a year. The good news is that an SOV avoids hassles with the IRS over valuation later on. But the bad news is that if you don't agree with the SOV, you are left with no alternative but to litigate the issue (you still must attach it to your return, even if you claim a higher deduction than the SOV).

Pitfalls

Donations of appreciated property can produce important tax savings for you, but here are some things to watch out for.

Substantiation

As explained earlier, property donations must meet substantiation requirements to be deductible. The Tax Court recognized that a deed of gift for the transfer of property to charity may be considered a “contemporaneous written acknowledgment,” but only if it also says that no goods or services were received in exchange.

PENALTY FOR OVERVALUATIONS

Valuing property isn't an exact science. When making charitable donations, you hope that the property is valued as highly as possible to boost your deduction. But don't be too generous in your estimations; substantial overvaluations of charitable donations resulting in a tax underpayment exceeding $5,000 can lead to a penalty.

  • If the value claimed is 200% or more of the correct value (and results in an underpayment exceeding $5,000), the penalty is 20% of the underpayment.
  • If the value claimed is 400% or more of the correct value (and results in an underpayment exceeding $5,000), the penalty is 40% of the underpayment.

The penalty is applied on an item‐by‐item basis. So, for example, if you donate 2 objects, overvaluing one item and undervaluing the other, you cannot offset the undervaluation by the overvaluation.

DONATIONS OF PROPERTY THAT HAS DECLINED IN VALUE

If you donate property that meets all of the conditions discussed, your tax deduction is based on the value of the property, even if you paid more for it. In effect, you get no benefit from the loss in value.

Unless the charity has a specific need for your item, it is advisable to sell the property rather than donate it if you can claim a tax deduction for your loss (for example, the property is investment property on which a capital loss can be claimed). You can then donate the proceeds so that the charity receives the same benefit. But selling the property will allow you to take a tax loss on the sale.

This strategy, however, does not apply to personal (noninvestment or nonbusiness) items, such as your personal car, because you cannot take a capital loss deduction on their sale.

APPRAISALS AND ADDITIONAL COSTS

You may have costs over and above the property you're donating. There may be appraisal costs for determining the value of the donation so you know how much to deduct. There may be packing, shipping, and insurance costs to send donated items to a charitable organization. These costs are not deductible in 2018 through 2025 due to the suspension of the miscellaneous itemized deduction subject to the 2%‐of‐adjusted‐gross‐income floor.

Where to Claim the Deduction

Like cash donations if you itemize deductions, you report property donations on Schedule A of Form 1040 or 1040‐SR.

But you may also have to complete Form 8283, Noncash Charitable Contributions, as explained earlier under “Substantiation.”

Used Clothing and Car Donations

Clothing that no longer fits, appliances and sporting equipment that are no longer used, and cars being replaced may be of great benefit to someone else. The tax law rewards donations of these items to charities that can put them to continued good use by permitting a tax deduction for those who itemize if certain conditions are met.

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Your old clothing, linens, toys, cars, and other items can be of benefit to others. Consider donating them to charity and taking a tax deduction for your efforts. A deduction of these items is generally subject to the 50% of adjusted gross income limit. This means that donations of these items are included along with your cash contributions to determine your annual limit.

Conditions

The items must be donated to a qualified charity (see the explanation of a qualified charity under “Cash Donations” earlier in this chapter).

You cannot claim a deduction if you donate items directly to an individual, no matter how much in need that person may be. For example, if a fire destroys a neighbor's home and you provide your neighbor with clothing and other items, you cannot claim a charitable contribution deduction for your generosity.

For donations of used clothing and household items, no deduction can be claimed unless the items are in “good used condition or better.” However, if a single item is appraised at over $500, it can be deducted even though it is not in good used condition (although condition certainly affects its value).

Special substantiation rules apply to donations of cars, boats, and planes valued at over $500. You must obtain a written acknowledgment, Form 1098‐C, Contributions of Motor Vehicles, Boats, and Airplanes, within 30 days of the date of contribution or the date that the organization sells the vehicle without using it in any significant way (e.g., driving a car to deliver meals to the needy for one year). If the organization sells the vehicle without using it in a significant way in its charitable activities or making any improvements to the vehicle, your donation is limited to the sale proceeds that the organization receives from a sale. Information about the sale is provided to the IRS. Use of Form 1098‐C is mandatory for these donations; a thank‐you letter from the charity is no substitute.

If you value a car over $250 but not over $500 and the charity sells it, you can deduct the actual fair market value (you are not limited to the sales proceeds). But if you value the car over $500 and the charity sells it for less than $500, your maximum deduction is $500. For example, if you value the car at $650 and the charity sells it for $450, you can deduct $500.

Planning Tips

Don't know what your used items are worth? Here are some resources you can turn to for help:

In one case, a court allowed a donation for used clothing valued at $25 per bag.

There are some apps to help with valuation, such as TurboTax's ItsDeductible Donation Tracker and Donation Assistant by Tax Act, which are free. You can use your smartphone to take photos of the donated items to keep with your records.

Pitfalls

Don't expect the charity to provide you with a valuation of your donation. It's up to you to assess the value of the items you donate; the charity merely confirms that you actually made the donation.

Don't include in the amount of your charitable contribution any appraisal fees or the cost of packing and shipping you incur when making property donations. These expenses are not deductible due to the suspension of miscellaneous itemized deductions between 2018 and 2025.

Where to Claim the Deduction

For information about where to claim a deduction for your donation, see the rules under “Appreciated Property Donations” earlier in this chapter, including the rules on substantiation and filing Form 8283, Noncash Charitable Contributions. Also attach Form 1098‐C, Contributions of Motor Vehicles, Boats, and Airplanes, if you donated such an item valued at over $500.

Intellectual Property Donations

If you give a patent, a certain copyright, or other intellectual property to charity, you can not only deduct the initial contribution, but can also claim deductions in future years for a percentage of the income that the charity derives from the property.

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You can claim an itemized deduction for donations of intellectual property to charity of:

  • The fair market value of the donation in the year of the donation for intellectual property that you did not create (or, for self‐created property, the amount that would have been ordinary income had you sold it rather than donated it).
  • A percentage of the income derived from the property for up to 10 years following the year of the donation. The percentage is based on Table 6.1 (the table runs for 12 years because of the potential for a donee to have a fiscal year or a short tax year).

Conditions

At the time of the donation, you must tell the charity that you intend to claim the additional deductions. This is done by providing the charity with your personal written statement of your intention to treat the contribution as a qualified intellectual contribution. This statement must also describe the property and the date of the donation.

Planning Tip

The additional deduction applies to all types of intellectual property. This includes not only patents and certain copyrights, but also trademarks, trade names, trade secrets, know‐how, certain software, and certain applications or registrations of this property.

TABLE 6.1 Deduction for Income from Intellectual Property Donations

Year Ending afterApplicable
Date of ContributionPercentage
1st100%
2nd100
3rd 90
4th 80
5th 70
6th 60
7th 50
8th 40
9th 30
10th 20
11th 10
12th 10

Pitfall

The additional deductions can be claimed for up to only 10 years following the year of the intellectual property donation.

If the life of the property is shorter than 10 years, you cannot claim additional deductions beyond this life.

The additional deduction does not apply to donations of intellectual property to a private foundation other than an operating private foundation.

Where to Claim the Deduction

Each year the charity informs you (and the IRS) of the income derived from your donation on Form 8899, Notice of Income from Donated Intellectual Property.

To claim a charitable contribution deduction, complete Schedule A of Form 1040 or 1040‐SR. You may also have to complete Form 8283, Noncash Charitable Contributions, as explained earlier in this chapter under “Substantiation Requirements” for appreciated property donations.

Real Estate Donated for Conservation Purposes

Real estate development has gobbled up open spaces and turned them into houses, shopping malls, and office buildings. But the government wants to encourage the maintenance of green spaces and does so by permitting tax deductions for donations of certain property interests for this purpose.

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Certain donations of partial interests in real property to government agencies or publicly supported charities for exclusively conservation purposes may entitle you to a deduction. Such donations include:

  • Your entire interest in real property other than retained rights to subsurface oil, gas, or other minerals. For example, you own land and donate it to your town, retaining these mineral rights.
  • A remainder interest in real property. For example, you own land. You keep the right to use it for the rest of your life, giving your town the remainder interest in the property. You do this by deeding the remainder interest to the town.
  • An easement, restrictive covenant, or similar property restrictions granted in perpetuity (meaning forever). For example, you own property but give your town an easement limiting the use of a portion of it for a bird sanctuary forever. Even if you later sell the property, the new owner must continue to respect the easement and keep the use as a bird sanctuary.

Conditions

Only donations for qualified conservation purposes entitle you to a deduction. Qualified conservation purposes include:

  • The preservation of land areas for outdoor recreation, education, or scenic enjoyment.
  • Preservation of historically important land areas or structures.
  • Protection of plant, fish, and wildlife habitats or similar natural ecosystems.

For a conservation easement contribution that relates to a building in a registered historic district, there is a $500 filing fee if the claimed deduction is more than $10,000. This payment is accompanied by Form 8283‐V, Voucher for Filing Fee Under Sec. 170(f)(13).

Planning Tips

To make the donation of an easement on your property, you may need to pay an attorney to handle the legal work involved.

Donations are deductible up to 50% of the contribution base (which is essentially adjusted gross income), instead of the usual 30% limit (provided the use of the donated property does not prevent farming or ranching). Farmers and ranchers have a 100% limit. Unused contributions because of this limit can be carried forward for up to 15 years.

Pitfalls

Once you give away this interest, you can't change your mind and get it back. As explained earlier, the donation must be in perpetuity (forever). Here is a list of actions that run counter to the rule about perpetuity and can cost you a deduction for any conservation easement donation:

  • Failing to subordinate a mortgage to the easement (making the interests of the lender secondary to those of the easement, which requires the consent of the lender)
  • Making a conservation easement in North Dakota, which limits the term of an easement to 99 years
  • Providing (even informally) that the property be returned if the IRS denies a tax deduction
  • Retaining the right to substitute property (even though no property is ever returned to you)
  • Having a right to a subtraction for post‐donation improvements in the event of a judicial extinguishment of the easement (although a federal appellate court said this did not violate the rule about perpetuity).

The IRS has designated abusive syndicated conservation easements, which allow investors to deduct more than their economic outlays, as a listed transaction (see Notice 2017‐10). Anyone entering one in 2022 must disclose this on his or her tax return. The failure to make this disclosure can result in penalties.

Where to Claim the Deduction

For information about where to claim a deduction for your donation, see the rules under “Appreciated Property Donations,” earlier in this chapter, including the rules on substantiation and filing Form 8283.

Bargain Sales

Taxpayers can have their cake and eat it, too—recoup their investments in property while obtaining tax deductions to boot—by making bargain sales of property to charity. It's a bargain because the charity is paying only a portion of the property's actual value, typically the donor's original cost for the property. It's a sale because the donor is receiving payment for the transaction and not merely donating the entire value of the property. Even so, a partial tax deduction is permitted under certain conditions.

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If you have appreciated property, you can recoup your investment while obtaining a tax deduction when you make a bargain sale to charity. In effect, the donation is viewed as 2 transactions: part sale and part gift.

You figure your gain on the sale by allocating the basis between the sale and the gift part as follows:

  • Step 1: Divide the sales proceeds by the fair market value of the property (include any outstanding debt as sales proceeds).
  • Step 2: Apply the percentage in Step 1 to the adjusted basis of the property to find the portion of the basis allocated to the sale.
  • Step 3: Subtract the resulting basis of Step 2 from the sales proceeds to find your gain.

Conditions

The same conditions apply to bargain sales as to other charitable contributions (for example, the charity must be an IRS‐approved organization). For conditions, see earlier in this chapter.

Planning Tip

A bargain sale can enable you to recover your cost (investment in the property) while also obtaining a deduction for any increased value in the property. Donating the property through a bargain sale saves you the time and expense of selling it to a third party in order to raise the funds to make the donation you would make if you keep your initial investment.

Pitfall

If the property you donate is not the type of property that entitles you to a donation of the appreciation (for example, you didn't own it for more than one year), then the bargain sale doesn't produce any charitable contribution deduction. Of course, the charity still obtains the item at a bargain price.

You must allocate the basis of the property on a bargain sale even if the annual AGI limit prevents you from claiming a charitable contribution deduction.

Where to Claim the Deduction

You report the bargain sale on various forms and schedules accompanying Form 1040 or 1040‐SR: Report the donation portion on Form 8283. Use Schedule D to report the sale portion and Schedule A to report the gift portion.

Details on reporting gifts of appreciated property are explained earlier in this chapter.

Volunteer Expenses

During natural disasters, the efforts of volunteers are widespread and dramatic, but volunteering has become the thing to do at any time. According to AmeriCorps, about 77.9 million Americans did some volunteer work in 2019 (there are no more recent statistics). While individuals bear the burden of the time and effort they put in, the government helps defray any actual out‐of‐pocket costs through a deduction that can be claimed if certain conditions are met.

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If you incur out‐of‐pocket expenses in serving your favorite charity, you can deduct these costs as part of your itemized deduction for charitable donations.

If you use your vehicle for charitable purposes, including attending meetings of organizations you serve, you can deduct your actual vehicle expenses for gas and oil or mileage at the rate of 14¢ per mile. The 14¢ per mile rate is fixed by law (unchanged since 1997); it cannot be increased by the IRS and so has remained constant for many years. Whichever method you select, you can also write off parking and tolls.

Conditions

As long as you incur out‐of‐pocket costs for a qualified charity (explained earlier in this chapter under “Cash Donations”), your costs are deductible.

EXAMPLES OF DEDUCTIBLE UNREIMBURSED EXPENSES

  • Materials and supplies you furnish (e.g., stamps)
  • Related costs of hosting a fund‐raiser (e.g., invitations, food, and beverages)
  • Telephone calls
  • Travel expenses, including meals and lodging for overnight trips away from home to serve as an official delegate to a convention of a church, charitable, veteran, or other similar organization
  • Travel expenses to work for a charitable organization (such as Habitat for Humanity and Meals on Wheels)
  • Uniforms required in serving the organization

Planning Tip

Keep track of your mileage and out‐of‐pocket expenses on behalf of the charity. In a diary, logbook, or app, note the odometer readings for every charity‐related trip for which your car is used.

Pitfall

Just because you are not compensated by the charity for your efforts doesn't automatically mean that every cost you incur on behalf of the charity is deductible. You cannot deduct:

  • The value of your time and energy. Even if you perform work for the charity, you cannot deduct what you would have charged for your expertise.
  • The rental value of your home or vacation home that you allow the charity to use in its fund‐raising activities.
  • Babysitting expenses you paid to enable you to put in time for your charity.
  • Travel costs to attend a convention for a nonprofit organization if you are not a delegate.
  • Travel costs to work on a project for a nonprofit organization if there is a significant element of personal pleasure, recreation, or vacation involved.

You must substantiate your out‐of‐pocket expenses in order to deduct them. If total expenses are $250 or more, you must obtain a written acknowledgment from the charity for your activities. Without this substantiation, a deduction is limited to $249, provided there are credit card statements, canceled checks, or other documentation.

Where to Claim the Deduction

To claim a charitable deduction for your unreimbursed expenses, you must complete Schedule A of Form 1040 or 1040‐SR.

Tickets to Fund‐Raisers, Raffles, and Sporting Events

Who hasn't bought a ticket to a fund‐raising event or activity, such as a raffle or dinner dance, to benefit a charity? Just because the check is written out to a charity doesn't automatically entitle taxpayers to a deduction. Special rules govern the extent, if any, to which the cost of fund‐raising tickets may be deductible.

Benefit image

You can deduct the purchase price for raffle tickets and charity‐sponsored events in excess of the regular admission price or other benefit you receive.

Condition

If you pay more than $75, the charity must supply you with a written explanation of the value of the benefit you receive so that you can figure your deduction, if any.

Planning Tip

If your donation entitles you to a ticket to a charity event but you do not want to attend, you can refuse to accept the ticket. In this case you can deduct your entire contribution (provided you meet other conditions such as substantiation). Make sure that an acknowledgment you receive from the charity reflects your refusal to accept the ticket.

Pitfalls

You cannot deduct any of the cost of Girl Scout cookies you buy for your own consumption. The cost of the cookies is treated as their fair market value so you haven't made any gift. But if you leave the cookies with the troop, you may treat your payment as a deduction. Similarly, if you donate the cookies to a charity, you can deduct your cost (not the estimated retail value).

No deduction is allowed for a donation entitling you to receive the right to buy tickets or seating at college or university athletic events.

Where to Claim the Deduction

To claim a charitable deduction for your donations in connection with tickets, raffles, or other fund‐raisers, you must complete Schedule A of Form 1040 or 1040‐SR. You do not have to attach the written explanation for your donations to your return; save them for your records with the copy of your return.

If you do not make donations of property, you do not need any additional form or schedule other than Schedule A to report your charitable contributions.

Membership Fees to Nonprofit Organizations

Anthropologist Margaret Mead said, “Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed it is the only thing that ever has.” Perhaps that's why so many Americans belong to organizations of all kinds, including religious, civic, and fraternal organizations. Belonging is rewarded taxwise to a certain extent by permitting the cost of dues to be deductible, within certain limits.

Benefit image

If you pay dues to nonprofit organizations, you can treat the payments as cash contributions subject to the rules discussed earlier in this chapter. Examples of membership fees that are deductible include payments to religious organizations (e.g., your church) and fraternal organizations operating under a lodge system (e.g., Elks Club).

You must reduce your deduction, however, by the value of any benefits (other than token amounts) you receive, such as monthly journals.

You do not have to reduce your donation by these tokens distributed by the charity in gratitude for your gift:

  • Items costing no more than $11.70 if your gift is at least $58.50 in 2022 (these figures are adjusted annually for inflation)
  • Items worth no more than $2.34 (2% of $117) in 2022, regardless of the amount of your gift

If you pay $75 or less for membership that entitles you to benefits, you can fully deduct your dues if either of these alternatives applies:

  • You receive membership privileges that can be exercised frequently (e.g., free or discounted parking or admission) or discounts on gift shop or mail order items.
  • Your membership entitles you to admission to members‐only events and the cost of each event is no more than $11.70 in 2022.

If you pay more than $75, you can exclude only those benefits that you would have excluded had you paid $75 or less; more expensive benefits are not excludable.

Student Exchange Program

Individuals who open their homes to students, serving as hosts under special programs, may be eligible for a tax break that helps to defray the cost of hospitality. To claim this tax benefit (which hasn't changed since 1960), certain conditions must be met.

Benefit image

If you support a student in your home, you may deduct up to $50 per month as a charitable contribution deduction as long as you itemize your deductions and meet certain conditions. If the student is in your home for at least 15 days of a month, you can treat it as an entire month.

Conditions

To claim a deduction for supporting a student in your home, you must meet all 3 of these conditions:

  1. The student must be in elementary or high school.
  2. The placement in your home must be arranged under an educational program by a charitable organization and is documented by a written agreement.
  3. You have records showing what you spend on the student's food, clothing, medical care, schooling, and recreation.

Planning Tip

Supporting a student in your home may entitle your child to spend time in another family's home. For example, if you accept a foreign exchange student into your home, you may not only obtain a tax deduction for that foreign student, but in addition, your child may be able to go abroad and there is no tax cost to this benefit—to you or to your child. While you may have to pay out‐of‐pocket for airfare, your child's living expenses abroad may be provided for free.

Pitfall

You usually cannot deduct any payments made where you receive money from the charity for the student's maintenance. For example, if the charity reimburses you for medical expenses you pay for the student, you cannot deduct the medical expenses you paid. However, you are permitted to deduct your prepayment of a one‐time expense, such as a medical bill or vacation for the student at the request of the student's parents or sponsoring organization for which you are later reimbursed for part of the cost.

Where to Claim the Deduction

See under “Cash Donations” earlier in this chapter.

Special Inventory Donations

Business owners may enjoy an enhanced charitable contribution deduction for donations by sole proprietors and any other businesses to public charities. The food must be apparently wholesome and meet all federal quality and labeling standards. The deduction is the lesser of (1) the item's basis in inventory plus ½ of its appreciation, or (2) 2 times the item's basis.

Donor‐Advised Funds

You've heard the old saying “buy now, pay later.” Well, you can donate now and deduct the contribution now, even though money is not disbursed to a charity until later. Using a donor advised fund (DAF), you make contributions to the fund and suggest which charity should benefit from them. The fund usually follows your recommendation, although it is not required to. You claim the deduction when money or property goes into the fund.

Benefit image

You can deduct the money and property donated to the fund (see earlier in this chapter for rules on cash donations and donations of appreciated property).

Conditions

You cannot require the fund to disburse the money to a charity of your choice. You can only make suggestions. For example, if you have $15,000 in your fund account, you can ask that $5,000 be disbursed to the American Red Cross; the fund will usually follow your request, but does not have to.

Planning Tip

Wealthy individuals can set up private foundations or use other charitable vehicles to direct funds to the charities of their choice. If you do not have sufficient funds to create your own private foundation, you can use a commercial fund such as:

Some large charities and trusts offer donor‐advised funds, which you can find through a web search.

Pitfall

No deduction can be claimed for a contribution to a donor advised fund if the sponsoring organization is a war veterans organization, a fraternal society, or a nonprofit cemetery company.

Where to Claim the Deduction

See “Cash Contributions” earlier in this chapter.

Sophisticated Charitable Giving Arrangements

Wealthy individuals have a number of options for giving away substantial amounts of money and property. The reason they're essentially restricted to these individuals is the costs of setup and administration.

A full discussion of these options is beyond the scope of this book, but they include:

  • Private foundation. This is an organization set up to further the charitable goals of the donor. The foundation must distribute annually at least 5% of the previous year's average net assets for charitable purposes. Contributions to the foundation are deductible, although cash contributions usually are limited to 30% of AGI and long‐term capital gain property to 20% of AGI.
  • Charitable lead trust. This type of donation enables the charity to receive income from the trust for the life of the donor or joint lives of the donor and spouse, or for a term of years. At the end of this period, the property remaining in the trust passes to a beneficiary named by the donor (it can revert to the donor, but this option typically isn't used). The contribution deduction is based on the charity's income interest, which is figured using a factor determined by the IRS.
  • Charitable remainder trust. This type of donation enables the donor to retain the right to receive income for life or a term of years not exceeding 20 years. At the end of this period, the property remaining in the trust belongs to the charity. There are 2 types of charitable remainder trusts: a charitable remainder unitrust (CRUT), where annual income is a fixed percentage of the value of the trust determined each year, and a charitable remainder annuity trust (CRAT), where income is a fixed annual amount similar to a commercial annuity. The contribution deduction is based on the charity's remainder interest, which is figured using a factor determined by the IRS.

Again, setting up and managing these arrangements requires substantial professional fees. They must comply with IRS rules to avoid penalties or other tax problems. Again, such arrangements should be undertaken only with professional assistance.

IRA Transfers to Charity

Individuals age 70½ and older may make direct transfers from their IRAs to public charities up to $100,000, called qualified charitable distributions (QCDs). No charitable contribution deduction may be claimed for the transfer, but the distribution is not taxable. The rules for QCDs are explained in greater detail in Chapter 5. This transfer option may be especially appealing to seniors who want to benefit their favorite charity but who do not itemize their deductions and could not claim a charitable deduction in any event. For details about doing this, see Chapter 5.

Leave‐Based Donation Programs

Your employer may offer a leave‐based donation program that is used to help co‐workers who need help when out because of illness or other event. You give up your vacation, sick, or personal leave that other employees may use as needed. You are taxed on your contributed compensation and you cannot treat this as a charitable contribution. From time to time, the IRS may allow special treatment for employees who donate their unused leave time to a company program (e.g., in 2020 and 2021 for COVID‐19 relief needs; in 2022 for Ukraine relief due to the Russian invasion). In this situation, employees are not taxed on their contributions to the program provided the employer donates the contributions to a charity for relief; the employer claims the charitable contribution deduction. Note that 2022 contributions for Ukraine relief require employers to complete their contribution before January 1, 2023.

TABLE 6.2 Record Keeper for Your Cash Donations

DateName of CharityAmount of Donation
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

Record Keeper for Your Charitable Giving

Use the record keeper in Table 6.2 to note cash contributions you make throughout the year. Include in this record your weekly donations in the church plate and similar donations. Obtain a written acknowledgment from the charity for these donations.

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