For the most part, donations of cash or property to charity are deductible on your personal tax return (subject to certain limitations). Taxpayers are required to substantiate any cash or monetary gift with a bank record or written acknowledgement from the charity. It must specify the amount and date of contribution, as well as the name of the charity. If you receive an item or service in return for your donation, you must reduce your deduction by the value of that item or service. For example, if you donate $150 to a charity and receive a book worth $30, your total deduction would be limited to $120. The charity must inform you of the item's value.
Donations of clothing and household items must be in "good condition." For noncash donations worth more than $500, you must provide additional information with your Federal tax return. Be sure to obtain a certified appraisal for donations worth over $5,000 (other than publicly traded securities) and nonpublic stock worth over $10,000.
Although you cannot deduct the value of your time or services contributed to a charity, you may deduct out-of-pocket expenses, including a 14 cents per mile deduction for charitable travel.
Even if you donate every penny of what you make in any given year, your charitable contribution deduction is limited to 50% of your AGI. You can, however, carry forward the excess contributions for five years.
Charitable Vehicle Donations
When claiming a deduction for a vehicle worth more than $500, you may deduct only the amount the charity receives for the sale of the car. Many charities wholesale donated cars and receive less than market value. Prior to 2004 reform, taxpayers could write off the car's full blue book value, regardless of the amount the charity received for the car. In the event the charity retains the vehicle for its own use, the taxpayer is responsible for substantiating how the vehicle will be used and for how long. These new rules only apply when the deduction exceeds $500.
Donating appreciated capital gain property to charity has many tax advantages. For most appreciated property, the amount of your deduction is the value of the property rather than its cost, and you are never taxed on the amount of appreciation. In the case of many property donations, an annual deduction limit of 30% of AGI applies. Inventory, items donated for a charity auction, and certain other property are subject to different rules.
Sell property that has declined in value and donate the proceeds to charity, since you may be able to deduct both your capital loss and your contribution. If you give devalued property directly, you may deduct the fair market value of the property as a charitable contribution, but you won't be able to deduct the loss.
The Protecting Americans from Tax Hikes Act of 2015 (PATH) signed into law on December 18, 2015, includes incentives for charitable giving that were made permanent:
The Sec. 170(b) charitable deduction for contributions of real property and the special rule for contributions of capital gain real property made for conservation purposes, which permits qualified conservation contributions to be deducted up to 50% of a taxpayer’s contribution base (100% for qualified farmers and ranchers).
The Sec. 408(d)(8) deduction which allows taxpayers who are at least 70½ years old to make up to $100,000 in qualified charitable distributions from individual retirement plans without including the distributions in income.