Charitable donations deduction limitation

Your Guide to State, Local, Federal, Estate + International Taxation

donations, charitable contributions, tax, tax reform, deductionAs you know, there are potential tax benefits for your donations to qualifying charitable organizations, and the tax reform bill is not making any major changes to that. There is, however, one taxpayer-friendly adjustment in the tax bill regarding cash donations.

When making donations to public charities, your allowable tax deduction is limited to a certain percentage of your Adjusted Gross Income (AGI), depending on the type of donation that is made. For cash donations, that limitation has been 50% of AGI. For example, if a taxpayer with an AGI of $100,000 wrote a $75,000 check to their favorite charity, the taxpayer’s deduction for that donation would be limited to $50,000. The new tax bill makes an upward adjustment to that limitation. Beginning in 2018, cash donations will be limited to 60% of AGI. So, if you’re feeling extra generous in 2018, you may see some additional tax benefits for your cash donations.

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The limitations on other forms of property remain unchanged. Property owned by the taxpayer for over one year, to be used by the charity in a manner that is related to their operations, is limited to 30% of AGI. An example of such a gift would be artwork donated to an art museum for display. If the same artwork was donated to a children’s hospital, who would not be displaying the art but rather would be selling it to use the proceeds, the tax deduction would be subject to a 50% of AGI limitation. These “related use” rules are not applicable for property that the taxpayer has owned for less than one year; short-term property is subject to the 50% limitation, regardless of the charity’s intended use.

Remember that the federal tax benefits of charitable contributions are only available to taxpayers who itemize their deductions; with the standard deduction increasing significantly in 2018, many taxpayers who itemized in previous years will no longer be eligible. So when in doubt, always consult your tax advisor prior to making a gift that you are expecting a deduction for.

Austin Bradley, CPA