Most churches qualify as tax-exempt under Section 501(c) (3) of the Internal Revenue Code. Not only are such churches exempt from paying federal income tax, but their donors may deduct the value of their donations from their taxable income. The Internal Revenue Service imposes certain restrictions on this deduction, however, including record-keeping requirements.
Pledges vs. Donations
Strictly speaking, you cannot deduct the value of a pledge because a pledge is only a promise to provide a donation in the future. You can deduct only the value of whatever you actually donate during the tax year. If you pledge $1,000, for example, but pay only $700 during the tax year, you can deduct only $700. This restriction remains even if you enter into a binding contract to provide donations.
You can deduct donations only to churches that qualify under Section 501(c)(3). To qualify, the church must be nonprofit. Although unlike other 501(c)(3) nonprofits a church does not have to receive a favorable determination letter from the IRS to qualify under Section 501(c)(3), it is safer to donate to a church that went to the trouble of obtaining one to make sure that its status is not retroactively revoked. Religious requirements apply as well. For example, the church must have a recognized creed and form of worship, an ecclesiastical government and established places of worship.
Figuring the Deduction
You will not become liable for gift tax no matter how much you donate, but your deduction is limited to 50 percent of our adjusted gross income. If you donate money to a church, you may deduct it at its face value. If you donate property, however, you must value it at fair market value unless special IRS rules apply. Special valuation rules apply to items such as clothing and vehicles. You may never deduct the value of services performed or time spent volunteering, although you may deduct your out-of-pocket expenses. Special rules apply to “quid pro quo” donations — donations for which you receive something of lesser value in return.
You claim your deduction by filing Form 1040 and Schedule A, and you must itemize your deductions. The church must supply you with a written acknowledgement record of any donation. If your donation to a single church totals $250 or more during a single tax year, the acknowledgement must include the date, amount and whether you received anything of value in return. You must obtain an official appraisal report if you intend to write off more than $5,000 for a donation of property. Keep these records in case of an IRS audit.
David Carnes has been a full-time writer since 1998 and has published two full-length novels. He spends much of his time in various Asian countries and is fluent in Mandarin Chinese. He earned a Juris Doctorate from the University of Kentucky College of Law.