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What Can I Deduct as a Charitable Deductions?

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What Can I Deduct as a Charitable Deductions? Who Can I Donate Property?

Contributions can be deducted only if they are contributed to a qualified organizations approved by the IRS (except governments and churches). There are usually five types of qualified organizations:

A corporation trust, fund, foundation:

  • Religious
  • Charitable
  • Educational
  • Scientific
  • Literary
  • The prevention of cruelty to children or animals

War veterans’ organizations: auxiliaries, trusts, foundations organized in the US or its possessions.

Domestic Fraternal Societies: orders, associations operating under the lodge system.

Certain nonprofit cemetery companies or corporations.

The United States or any state, the District of Columbia, a US possession (including Puerto Rico) or an Indian tribal government or its subdivisions that perform governmental functions.

You can deduct contributions made to Canadian organizations as long as they are covered under an income tax treaty with Canada. You have to have income from Canadian sources to deduct contributions to Canadian charities.

You can deduct contributions made to Mexican organizations as long as they are covered under an income tax treaty with Mexico. The Mexican charitable organization must meet the same tests that would qualify a US organization to be considered charitable.

 

You might be able to deduct contributions to certain Israeli charitable Organizations under an income tax treaty with Israel. Your contribution has to be made to an organization created and recognized as a charitable organization under the laws of Israel. The allowed deduction will be the same as if the organization was created under the laws of the United States, but limited to 25% of your adjusted gross income from Israeli sources.

Our charitable deductions are limited to 50% of our AGI, although there are cases when our deductions will be limited to 20% and 30% of our adjusted gross income.

If you are giving services to a charitable organization, you can deduct some out of pocket expenses that you might have driving your car which include expenses such as gas and oil. You can’t deduct maintenance, depreciation or registration fees. A specific standard mileage rate is available for charitable miles. Since rates are adjusted according to inflation, I am not publishing any rates, it is best to Google them for the year you are looking for.

You can deduct your contributions ONLY in the year you make them regardless of your method of accounting.

Nondeductible Contributions

Contributions you cannot deduct

  • A contribution to a specific individual
  • A contribution to a nonqualified organization
  • The part of a contribution from which you receive or expect to receive a benefit
  • The value of your time or services
  • Your personal expenses
  • A qualified charitable distribution from an individual retirement arrangement (IRS)
  •  Appraisal Fees
  • Certain contributions to donor advised funds
  • Certain contributions of partial interest in property

Contributions to non-qualified organizations

You cannot deduct contributions to entities that are not approved to take tax-deductible contributions. Some of such entities are listed below:

  • Political organizations and candidates
  • Labor unions
  • Homeowner associations
  • Foreign Organizations besides:
    • Ø Certain Canadian, Mexican and Israeli Charitable Organizations
    • Country Clubs and other social clubs
    • Communist Organizations
    • Civic leagues and associations
    • Chambers of commerce and other business leagues and organizations
    • Certain Bar Associations if:
      • Ø The state bar is not a political subdivision of a state
      • Ø The bar has private, as well as public, purposes, such as promoting the professional interests of members, and
      • Ø Your contribution is unrestricted and can be used for private purposes

If you contribute property to a qualified organization, generally the fair market value of the property on the date of the contribution is the amount of your charitable contribution. But, if the value of property you contributed has increased then you might have to make some adjustments to value of the contributed property.

For you to be able to take a deduction for household items or clothing, they need to be in god used condition or better.

Exception to the rule above would be if you took a deduction for household items or clothing over $500 and had an appraisal.

 

Household items include:

  • Furniture,
  • Furnishings
  • Electronics
  • Linens and
  • Other similar items

Household items do not include:

  • Food
  • Paintings, antiques, and other objects of art
  • Jewelry and gems and
  • Collections

Fair Market Value:

Fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.

Used Clothing:

The fair market value of used clothing or other personal use items is usually far less than what you paid for them. There is no set formula on how to determine what the fair market value on used clothing is. You should base your deductions on comparable sales in used clothing stores.

Household items:

The fair market value of household items like furniture, appliances and linens donated is usually much less than what we paid for them. These items may have little or no market value because they are in a worn condition, out of style or no longer useful. You should support your valuation with photographs, canceled checks, receipts from purchase of those items or other evidence. Magazine or newspaper articles and photographs that describe the items and statements by the recipients of the items are also useful. Do not send this evidence with your tax return.

You must file form 8283 if the amount of your deduction for all noncash gifts is more than $500. The form 8283 must be filed with schedule A attached to form 1040 for the year you contribute the property.

Limit on deductions

If you contribute property (clothing, furniture, appliances etc) with a FMV that is less than your basis in it, your deduction is limited to fair market value. You cannot claim a deduction for the deference between the property’s basis and its fair market value.

Donating property that has increased in value:

If you contribute property with a FMV that is more than your basis in it, you have to reduce the FMV by the amount of appreciation when you figure your deduction. Your basis in property is generally what you paid for it. Different rules apply to figuring your deduction, depending on whether the property is:

  • Ordinary income property
  • Capital gain property

Ordinary Income property

Property is ordinary income property if its sale at FMV on the date it was contributed would have resulted in ordinary income or in short term capital gain. Examples of ordinary income property are inventory, works of art created by the donor, manuscripts prepared by the donor, and capital assets held 1 year or less.

Amount of deduction

The amount you can deduct for a contribution of ordinary income property is its FMV less the amount that would be ordinary income or short-term capital gain if you sold the property for its FMV. Generally this rule limits the deduction to your basis in the property.

Example

You donate stock that you held for 5 months to your church. The FMV of the stock on the day you donate it is $1000, but you paid only $800 (your basis). Because the $200 of appreciation would be short term capital gain if you sold the stock, your deduction is limited to $800 (FMV less the appreciation).

Written by David Ghazaryan

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