Charitable Contributions & Taxes
Cash contributions. Congress has tightened the rules for cash contributions. In order to take a deduction for charitable contributions of cash, check or other monetary gift — no matter what the amount — you must provide a bank record or a written communication from the charity indicating the amount of the contribution, the date the contribution was made, and the name of the charity. Self-created log books will not suffice.
A cash-basis taxpayer generally takes a deduction when cash or property is actually paid, regardless of when a pledge is made. Payment by check is considered a payment. If the check is mailed, the payment is made at the time of mailing, even if the check is received in the following year, as long as the check is honored in the routine course of business. However, if the taxpayer post-dates the check to 2008, if the check bounces, or if the recipient holds the check because the account lacks sufficient funds, no payment has been made. If the recipient delays but ultimately cashes the check, and the date of delivery is not disputed, the payment dates back to the time the check is delivered or mailed.
Payment by a credit card is also considered a payment. The IRS treats the transaction as a cash equivalent. In effect, the taxpayer has borrowed funds from the bank issuing the card and has paid the seller for goods or services. Likewise, payment with a debit card is treated as a payment when the sale is completed, not when funds are later deducted from the purchaser’s account.
Household goods and clothing. Just like the rules for cash gifts, the rules for deducting donations of clothing and household items have also been tightened. In order to take a deduction for household goods and clothing, the clothing must be in at least “good” condition, which is undefined, however. The amount of the charitable contribution is based on the fair market value of the clothing or household item. Household items must also be in good or better condition. Ensure that your donations of furniture, pots and pans, dinnerware, sheets and blankets, home furnishings, electronics, appliances, and similar items are not broken or in disrepair. You must obtain a receipt from the charity, showing the name of the charitable organization, the date and location of the gift and a detailed description of the property contributed.
Moreover, gifts of $250 or more must be substantiated by a contemporaneous written acknowledgment from the charity containing a description of the contribution, whether you received any goods or services in consideration for the contribution, and a good faith estimate of the value of any goods or services. If the claimed deduction exceeds $500, donors must include Form 8283, Noncash Charitable Contributions, with their return. Special rules apply for deductions of $5,000 or more. Our office can help navigate you through the various rules.
Contributions of automobiles. There are special rules that apply to donations of motor vehicles to charities. For instance, if you want to donate your car to charity (or a plane or boat) with a claimed value of more than $500, your charitable deduction amount will depend on the charity’s use of the vehicle. You can deduct the full fair market value (FMV) of the vehicle if the charity actually uses the vehicle to substantially further its regularly conducted charitable activities and the use is significant. Alternatively, you can deduct the full FMV if you have made a material improvement such as a major repair that improves the vehicle’s condition in a way that increases its value. Otherwise, your contribution will be valued at its “auction price,” which is typically quite low.
Contributions of appreciated capital gain property. The deduction for contributions of appreciated capital gain property can be quite complex. Generally, contributions of appreciated capital gain property to a qualified charitable organization are subject to a 30 percent of adjusted gross income ceiling, unless a specific election is made to reduce the deductible amount of the contribution. This election will limit your deduction to the basis of the contributed property.
Contributions from an IRA. The deductible amount of an individual’s charitable contributions made during a tax year generally may not exceed 50-percent of the taxpayer’s “contribution base” (basically, a modified adjusted gross income amount). Certain distributions made directly from an IRA to a charity before 2010, however, are not limited by this 50-percent ceiling nor do they count toward that limit in the case of other types of contributions. This special treatment is accomplished not by allowing a charitable deduction for an IRA contribution but rather by excluding any qualifying distribution from inclusion into the taxpayer’s income. The exclusion may not exceed $100,000 per taxpayer per taxable year. To be a qualified charitable distribution, the distribution must be made after the IRA owner turns age 70 1/2 and is made directly from the IRA trustee to a qualifying charitable organization. The ability to make a donation directly from our IRA to a charity is only available through 2009, unless Congress acts to extend this provision.
Conservation easements. You can also make a contribution of a qualified real property interest to a charity exclusively for conservation purposes. Through the end of 2009, the 30 percent contribution base limit does not apply to an individual’s qualified conservation contribution. Moreover, if the total amount of your pre-2010 qualified conservation contributions exceeds the applicable limit, you can carry over the excess to each of the 15 succeeding years.
If you have any questions about making a charitable contribution and taking a deduction for your contribution, please call our office.