Whether you’re claiming charitable deductions on your 2017 return or planning your donations for 2018, be sure you know how much you’re allowed to deduct. Your deduction depends on more than just the actual amount you donate.
Type of Charitable Deductions
One of the biggest factors affecting your deduction is what you give:
- Cash. You may deduct 100% gifts made by check, credit card or payroll deduction.
- Ordinary-income property. Stocks and bonds held one year or less, inventory, and property subject to depreciation recapture. You generally may deduct only the lesser of fair market value or your tax basis.
- Long-term capital gains property. You may deduct the current fair market value of appreciated stocks and bonds held for more than one year.
- Tangible personal property. Your deduction depends on the situation:
- If the property isn’t related to the charity’s tax-exempt function (such as a painting donated for a charity auction), your deduction is limited to your basis.
- If the property is related to the charity’s tax-exempt function (such as a painting donated to a museum for its collection), you can deduct the fair market value.
(Be careful with Tangible personal property (example – giving household goods to Salvation Army) – if you claim more than $5,000 of deductions in total tangible personal property, you will need an appraisal on all of the goods donated)
- Vehicle. Unless the vehicle is being used by the charity, you generally may deduct only the amount the charity receives when it sells the vehicle.
- Use of property. Examples include use of a vacation home and a loan of artwork. Generally, you receive no deduction because it isn’t considered a completed gift.
- Services. You may deduct only your out-of-pocket expenses, not the fair market value of your services. You can deduct 14 cents per charitable mile driven.
Other factors when making charitable deductions
First, you’ll benefit from the charitable deduction only if you itemize deductions rather than claim the standard deduction. Your annual charitable donation deductions will be reduced if they exceed certain income-based limits.
In addition, your deduction generally must be reduced by the value of any benefit received from the charity. Finally, various substantiation requirements apply, and the charity must be eligible to receive tax-deductible contributions.
While December’s Tax Cuts and Jobs Act (TCJA) preserves the charitable deduction, it temporarily makes itemizing less attractive for many taxpayers. This could reduce the tax benefits of charitable giving for them.
Itemizing saves tax only if itemized deductions exceed the standard deduction. For 2018 through 2025, the TCJA nearly doubles the standard deduction. Plus, it limits or eliminates some common itemized deductions. As a result, you may no longer have enough itemized deductions to exceed the standard deduction, in which case your charitable donations won’t save you tax.
You might be able to preserve your charitable deduction by “bunching” charitable deductions into alternating years, so that you’ll exceed the standard deduction and can claim charitable deductions (and other itemized deductions) every other year.
If you are over age 70 1/2, another consideration is to make a qualified charitable donation straight from your IRA or 401(k). You won’t receive the charitable deduction for it, but you would satisfy your required minimum distribution.
Let us know if you have questions about how much you can deduct on your 2017 return or what your charitable giving strategy should be going forward.