IRS Donation Deductions
It's better to give than to receive – unless you're the Internal Revenue Service. The IRS has a host of rules relating to deductions for charitable donations, all of them designed to ensure that you don't subtract too much from your taxable income. This isn't to say that you can't get a bit of a tax break if you're generous, but you may not receive a dollar-for-dollar deduction.
Unfortunately, if your neighborhood is raising money to help a needy family purchase holiday gifts for its children, you won't get a tax deduction for contributing. It's an honorable cause, but only donations made to certain qualified charities count. These include those provided for under the terms of Section 170(c) of the Internal Revenue Code, such as churches or synagogues, as well as recognized charitable organizations like the Humane Society, the Red Cross, or the Kids Wish Network.
Valuing Your Donation
If you make a cash donation, the value of your deduction is easy to figure. The calculation becomes trickier if you donate property. Things like clothing or household items must be in good or better condition, and their values are typically not what you paid for them unless you purchased them very close to the date when you gave them away. Otherwise, fair market value is typically what a reasonable person might pay for the item in its current condition. If you donate a vehicle, you can use an auto guide to determine its fair market value, but you must use the price given for a private sale, not the dealer retail value. If the charity sells the vehicle after receiving it, your deduction might be drastically cut – you can only claim what the charity received for the vehicle, regardless of how much it was actually worth.
Depending on your adjusted gross income, you may not be able to deduct the entire value of your donations. The Pease limitation applies if your AGI is $250,000 or more, or over $300,000 if you're married. In this case, you can only take a portion of the charitable deductions available to other taxpayers, according to rules outlined by the IRS. Regardless of your income, though, in no case can you deduct charitable donations in excess of 50 percent of your AGI, and in the case of gifts made to some private foundations, the limit is 30 percent.
You must itemize on Schedule A to claim a deduction for charitable giving. Depending on the value of what you gave away, you might also have to file an additional tax form. If you donate $500 or more, you must complete and submit Form 8283 with your return. Section A of Form 8283 relates to donations of up to $5,000, and you must complete Section B if your gift was worth more than that. Property donations of more than $5,000 also require professional appraisals.
Beverly Bird has been writing professionally for over 30 years. She specializes in personal finance and w, bankruptcy, and she writes as the tax expert for The Balance.