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Tax Deductibility of Donations

Last modified: April 19, 2021
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Overview

Gifts made to 501(c)(3) charitable organizations are generally tax deductible to the donor.  The amount of the tax deduction is limited, and depends on several factors:  the type of gift (cash vs. in-kind or tangible), the specific sub-type of 501(c)(3) receiving the donation, as well as the tax year in question.

Cash Gifts

This is the most common type of donation, and includes not only cash, but also cash-equivalent gifts like stocks, bonds, or other publicly-traded securities.

Gift to Public Charity

Cash donations to a 501(c)(3) organization recognized as a public charity qualify for deductibility up to 60% of AGI (adjusted gross income).  Gifts of securities are similarly deductible, with the value being established as the market value at the time of the gift.

Example 1.  Jane gave a total of $8,500 during 2020 to various 501(c)(3) public charities.  Jane’s total AGI for 2020 was $66,000.  Her entire donation $8,500 should be deductible ($66,000 x 60% = $39,600 limit for 2020).

Example 2.  Kenneth gave a total of $45,000 during 2020 to public charities.  Kenneth’s total AGI for 2020 was $70,000.  His donation deductibility is limited to $42,000 ($70,000 x 60% = $42,000).  The $3,000 he was unable to take for 2020 may be carried over for potential use in a future tax year, up to 5 years.

Gift to Private Foundation

Cash donations to a private foundation 501(c)(3) have lower tax deductibility limits, specifically 30% of AGI.  Similar carryover rules as above apply for donations to private foundations exceeding the single year limit.

Non-Cash (In-Kind) Gifts

The same deductibility limits apply to non-cash gifts, but valuation is key.  Donations of tangible items, also known as in-kind gifts, are valued at fair market value at the time of the donation.  Large gifts, specifically those valued over $10,000, may require a professional appraisal.  If a donor gives a combination of cash and non-cash gifts, the limit applies to the combined total, not to each category separately.

Vehicle Gifts

Though vehicles are considered in-kind gifts, the valuation for tax purposes depends on the usage of the vehicle by the recipient charity.  If the charity keeps and uses the vehicle, the valuation is set as the fair market value at the time of the gift.  If, however, the charity sells the vehicle to convert the gift to cash, the valuation is set as the amount the charity is able to sell the vehicle for.

Gifts of Services and/or Rent

Gifts of services or time, such as the work performed pro bono by an attorney, are not tax deductible to the donor.  It may have to be valued as income by the charity, but it has no value for purposes of the donor.  Similarly, the donation of a space rent-free to a charity cannot be valued for donation purposes.

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This Post Has 2 Comments

    1. No, a tenant cannot deduct improvement to their own property as a charitable contribution, but they should be able to deduct the expense as a renovation or construction expense in their tax filing.

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