Charitable Deductions

The Basics:

  • You can deduct your contributions to charitable (non-profit) organizations only if you itemize your deductions.
  • You can’t deduct the value of your time or services spent on charitable work, but you can deduct mileage or vehicle expenses if you use your car for charitable purposes.
  • Your deduction for charitable contributions generally is limited to 50% of your adjusted gross income.

You can deduct your contributions to charitable (non-profit) organizations only if you itemize your deductions on Schedule A (Form 1040). Not every non-profit organization is a tax-qualified charitable organization. Be sure to ask the organization whether your contribution is tax-deductible or check with the IRS.

If you do itemize and give to a qualified charity, you can deduct cash donations and donations of property, but you can’t deduct the value of donated time and services.

If you contribute to a charity and receive something in return, such as dinner, then your charitable deduction is the amount you paid or the value of the property you donated minus the value of the goods or services received. But you don’t have to reduce your deduction if you get a small item or other benefit of token value that the charity deems unsubstantial. In that case, you can deduct the entire amount you contributed.

1. Money Contributions. Money contributions include amounts you donate to a charity in the form of cash, check, credit card or payroll deduction.

Note: You must have a receipt from the charity or a bank record for all charitable cash donations to claim a deduction on your tax return.

Out-of-pocket and car expenses you incur while donating your services are included in this category. For example, if you’re a graphic designer who spent time on a church newsletter, you can’t deduct your professional hourly fee. But you can deduct either 14 cents per mile for the use of your car for charitable purposes or you can deduct your actual expenses, such as gasoline. If you donate any supplies or food during your volunteer work, you can deduct those costs too.

2. Property Donations. When you donate property to a charity, you generally can deduct the fair market value of the property. But you must reduce the value of the donated property (including a vehicle) by the amount of income that would be ordinary income or short-term capital gain if you sold the property for its fair market value. Capital gain property is the term used to describe donated property the sale of which would result in long-term capital gain if sold.

You can deduct the purchase price of new items, but the deductible amount for used goods, such as clothing, household goods, furniture and other non-cash items is based on the item’s fair market value. When figuring the fair market value of used goods, check prices in stores that sell used goods, such as thrift stores. You can’t claim a deduction for household items, such as furniture or clothing, unless the items are in good condition or better.  The Salvation Army has a Donation Value Guide that you may find helpful … click here for the guide!

If you donate noncash items with a total value of more than $500, you must file Form 8283 with your return. You may need a qualified appraisal if you donate an item or a group of items with a value of more than $5,000.

If you donate a car, boat or plane with a claimed value of more than $500 to a charity, you can deduct the smaller of the fair market value of the vehicle or the gross proceeds of sale received by the charity from the sale of the item. However, you can generally deduct its fair market value if the organization:

  • Makes significant use of the vehicle.
  • Materially improves the vehicle.
  • Transfers the vehicle to a needy individual whose receipt of the vehicle is directly related to the charitable purpose of the organization.

The charity will provide you with a copy of Form 1098-C, that shows information relating to your donation of the vehicle. You must attach a copy of Form 1098-C to your tax return.

It is a fairly common question – should I donate my car or try and sell it. There is dollar value to the time and effort savings of not trying to sell your car. If you just want rid of the headache, call your favorite charity and they will probably come get it. However, if you really want to maximize the cash in your pocket, you should try and sell it first. If you have an airport car in NY and you transfer to LAX, put a note on the bulletin board – if the donated value is $1500 and you are in the 25% tax bracket – the cash in your pocket is only $375. You could probably get $500 in cash out of it!

3. Donations of Time and Services. You can’t deduct the value of your time or services spent on charitable work as a charity donation, but you can deduct your out-of-pocket costs as explained under “Cash Donations” above.

4. Limits on the Deduction. The deduction for charitable contributions generally is limited to 50% of your adjusted gross income (AGI). The deduction for appreciated property is limited to 30% of your AGI if you choose to deduct the fair market value of the property or 50% if you choose to deduct the basis of the property. The 30% limit also applies to donations of property to certain organizations, such as veterans’ organizations, fraternal societies, nonprofit cemeteries, and certain private no operating foundations, and to donations of property for the use of an organization. A 20% limit applies to gifts of capital gain property to or for the use of an organization subject to the 30% limit. Contributions in excess of the limit can be carried forward for up to 5 years. Applying the limits properly can be complicated.

See IRS Publication 526
See IRS Publication 1771