Chapter 14
Charitable Contribution Deductions

By making deductible donations, you help your favorite philanthropy and at the same time receive a tax benefit. For example, if you are in the 25% tax bracket, a donation of $1,000 reduces your taxes by $250.

For cash donations of any amount, your deduction will be disallowed if you do not have a canceled check or account statement, or a written receipt from the charity, to substantiate your contribution.

For donations of $250 or more, you must receive a written acknowledgement from the organization that indicates whether you received goods or services in return for your donation. You need the acknowledgment as well as a canceled check for a cash donation of $250 or more (14.14).

If you claim deductions for property valued at more than $500, you must substantiate the contribution on Form 8283 and attach it to Form 1040. If the value you claimed for the property exceeds $5,000, you generally must obtain a written appraisal (14.15).

If you donated a car (or other vehicle) valued at over $500, you also must attach Copy B of Form 1098-C to your return. Your deduction is generally limited to the gross sales proceeds received by the charity on a sale of the vehicle, even if you could substantiate a higher fair market value (14.7).

There are deduction ceilings depending on the type of donation and the nature of the charity, and an annual ceiling based on adjusted gross income (14.17).

If your adjusted gross income for 2017 exceeds the threshold for your filing status, your charitable contribution deduction is subject to the reduction of itemized deductions (13.7).

14.1 Deductible Contributions

Charitable contributions are not deductible if you claim the standard deduction (13.1). You must itemize deductions on Schedule A of Form 1040 to deduct your charitable donations. If you itemize, you may deduct donations to religious, charitable, educational, and other philanthropic organizations approved by the IRS to receive deductible contributions; see the listing below. If you are unsure of the tax status of a philanthropy, ask the organization about its status, or check the IRS list of tax-exempt organizations (irs.gov/eoselectcheck). Donations to the federal, state, and local government are also deductible.

Substantiating your donations. Keep a canceled check or receipt from the charity as proof of your donations. For donations of $250 or more, you need to obtain a written acknowledgment that notes any benefits or goods that you received in exchange (14.14).

For a donated car, other motor vehicle, boat, or airplane valued at over $500, you must obtain an acknowledgment on Form 1098-C (or equivalent substitute) that you must attach to your return (14.7).

Year-end donations. You deduct donations on the tax return filed for the year in which you paid them in cash or property. A contribution by check is deductible in the year you give the check, even if it is cashed in the following year. A check mailed and dated at the end of 2017 is deductible for 2017. A check postdated until 2018 is not deductible until 2018. A pledge or a note is not deductible until paid. Donations made through a credit card are deductible in the year the charge is made, so if you donate online or by phone towards the end of 2017, the donation is deductible on your 2017 return, even though you do not pay the credit card bill until 2018. Donations made through a pay-by-phone bank account are not deductible until the payment date shown on the bank statement.

Delivering securities. If you are planning to donate appreciated securities near the end of the year, make sure that you consider these delivery rules in timing the donation. If you unconditionally deliver or mail a properly endorsed stock certificate to the donee or its agent, the gift is considered completed on the date of delivery or mailing, provided it is received in the ordinary course of the mails. If you deliver the certificate to your bank or broker as your agent, or to the issuing corporation or its agent, your gift is not complete until the stock is transferred to the donee’s name on the corporation’s books. This transfer may take several weeks, so, if possible, make the delivery at least three weeks before the end of the year to assure a current deduction. If you plan to donate mutual fund shares to a charity towards the end of the year, contact the fund company to ensure that the transfer of shares to the name of the charity can be completed by the end of the year.

Debts. You may assign to a charity a debt payable to you. A deductible contribution may be claimed in the year your debtor pays the charity.

Limits on deduction. Depending on the nature of the organization and the donated property, a deduction ceiling of 50%, 30%, or 20% of adjusted gross income applies. In general, the deduction ceiling is 50% for cash contributions and 30% for contributions of appreciated property held long term (14.17). Where donations in one year exceed the percentage limits, a five-year carryover of the excess may be allowed (14.18).

Organizations Qualifying for Deductible Donations

The following types of organizations may qualify to receive deductible contributions:

A domestic nonprofit organization, trust, community chest, fund, or foundation that is operated exclusively for one of the following purposes:

Religious. Payments for pew rents, assessments, and dues to churches and synagogues are deductible.

Charitable. In this class are organizations such as Boy Scouts, Girl Scouts, American Red Cross, Community Funds, Cancer Societies, CARE, Salvation Army, Y.M.C.A., and Y.W.C.A.

Scientific, literary, and educational. Included in this group are hospitals, research organizations, colleges, universities, and other schools that do not maintain racially discriminatory policies; and leagues or associations set up for education or to combat crime, improve public morals, and aid public welfare.

Prevention of cruelty to children or animals.

Fostering amateur sports competition. However, the organization’s activities may not provide athletic facilities or equipment.

Domestic nonprofit veterans’ organizations or auxiliary units.

A domestic fraternal group operating under the lodge system. The contributions must be used exclusively for religious, charitable, scientific, literary, or educational purposes; or for the prevention of cruelty to children or animals.

Nonprofit cemetery and burial companies. Contributions must benefit the whole cemetery, not only your plot.

Legal services corporations established under the Legal Services Corporation Act. Such corporations provide legal assistance to financially needy people in noncriminal proceedings.

The United States, a U.S. possession, Puerto Rico, a state, city, or town or Indian tribal government. The gift must be for public purposes. The gift may be directed to a government unit, or it may be to a government agency such as a state university, a fire department, a civil defense group, or a committee to raise funds to develop land into a public park. Donations may be made to the Social Security system (Federal Old Age and Survivors Insurance Trust Fund). Donations may be made to the federal government to help reduce the national debt; checks should be made payable to “Bureau of the Public Debt.”

14.2 Nondeductible Contributions

The following types of contributions are not deductible:

1. Donations to or on behalf of specific individuals, even if needy or worthy. Generally, scholarships for specific students, or gifts to organizations to benefit only certain groups, are not deductible. However, the IRS in private rulings has allowed deductions for scholarship funds that are limited to (1) members of a particular religion, so long as that religion is open to all on a racially nondiscriminatory basis, or (2) are open only to male students.
2. Payments to political campaign committees or political action committees.
3. Payments to an organization that devotes a substantial part of its activities to lobbying, trying to influence legislation, or carrying on propaganda or whose lobbying activities exceed certain limits set by the law, causing the organization to lose its tax-exempt status. The IRS has disallowed contributions to a civic group opposing saloons, nightclubs, and gambling places, although the group also aided libraries, churches, and other public programs.
4. Gifts to organizations such as:

   Fraternal groups—except when they set up special organizations exclusively devoted to charitable, educational, or other approved purposes.

   Professional groups such as those organized by accountants, lawyers, and physicians—except when they are specially created for exclusive charitable, educational, or other philanthropic purposes. The IRS will disallow unrestricted gifts made to state bar associations, although such organizations may have some public purposes. Some courts have allowed deductions for donations to bar associations on the ground that their activities benefit the general public. However, an appeals court disallowed deductible donations to a bar association that rates candidates for judicial office.

   Clubs for social purposes—fraternities and sororities are generally in this class. Unless an organization is exclusively operated for a charitable, religious, or other approved purpose, you may not deduct your contribution, even though your funds are used for a charitable or religious purpose.

5. Donations to civic leagues, communist or communist-front organizations, chambers of commerce, business leagues, or labor unions.
6. Contributions to a hospital or school operated for profit.
7. Purchase price of church building bond. To claim a deduction, you must donate the bond to the church. The amount of the deduction is the fair market value of the bond when you make the donation. Interest on the bond is income each year, under the original issue discount rules (4.19), where no interest will be paid until the bond matures.
8. Donations of blood to the Red Cross or other blood banks.
9. Contributions to foreign charitable organizations or directly to foreign governments. Thus, a contribution to the State of Israel was disallowed.

Donation of services. You may not deduct the value of your time when you provide volunteer services for charity. But you can deduct unreimbursed expenses incurred during such work (14.4).

Free use of property. You may not deduct the rental value of property you allow a charity to use without charge. That is, if you allow a charity rent-free use of an office in your building, you may not deduct the fair rental value. You also have no deduction when you lend money to a charity without charging interest.

To raise money for a charity, supporters of the organization may donate rental time for their vacation home, to be auctioned off to the public. No deduction is allowed for donating the rental time (14.10).

Parents’ support payments of children serving as Mormon missionaries. According to the Supreme Court, support payments made by parents directly to their children who serve as missionaries are not deductible because the church does not control the funds.

14.3 Contributions That Provide You With Benefits

A contribution to a qualifying organization (14.1) is generally deductible only to the extent that you intend to give more than the value of benefits you receive and actually do so.

If you contribute $75 or less and receive benefits, the organization may tell you the value of the benefits. If your contribution exceeds $75, the organization by law must give you a written statement that estimates the value of the benefits provided to you and instructs you to deduct only the portion of your contribution that exceeds the benefits. However, the disclosure statement does not have to be provided to you if you receive only token benefits, or if you receive from a religious organization only “intangible religious benefits.”

Dues. Dues paid to a qualified tax-exempt organization are deductible to the extent they exceed the value of benefits from the organization, such as monthly journals, use of a library, or the right to attend luncheons and lectures. As discussed above, you generally must be provided with an estimate of any benefits you received if your donation exceeds $75.

If dues are paid to a social club with the understanding that a specified part goes to a qualifying charity (14.1), you may claim a charitable deduction for dues earmarked for the charity. If the treasurer of your club is actually the agent of the charity, you take the deduction in the year you give him or her the money. If the treasurer is merely your agent, you may take the deduction only in the year the money is remitted to the charity.

Benefit tickets. Tickets to theater events, tours, concerts, and other entertainments are often sold by charitable organizations at prices higher than the regular admission charge. The difference between the regular admission and the higher amount you pay is deductible as a charitable contribution. If you decline to accept the ticket or return it to the charity for resale, your deduction is the price you paid.

The charity should explain to you how much is deductible. The charity must provide an explanation if you paid more than $75; see the discussion above.

If the ticket is at or below its normal cost, no deduction is allowed unless you decline the ticket or return it to the charity.

If tickets were purchased for a charity-sponsored series of events and the average cost of a single event is equal to or less than the cost of an individual performance, then a deduction for a returned ticket is based upon the time the ticket was held. Generally, you may deduct only your cost. However, if you have held the ticket for more than a year, you may deduct the price the charity will charge on resale of the ticket.

Donation for the right to buy athletic stadium tickets. If you contribute to a public or nonprofit college or university and receive the right to buy preferential seating at the school’s athletic complexes, you may deduct 80% of the contribution to the school. The 80% deduction also applies where your contribution gives you the right to buy seating in stadium skyboxes, suites, or special viewing areas. The cost of any tickets you buy is not deductible. The deduction is allowed only to the extent that you receive the right to buy tickets rather than the tickets themselves. For example, if in exchange for a substantial donation you receive a season ticket worth $200, your payment is reduced by $200 before applying the 80% deductible percentage.

No deduction for house donated to fire department. Some homeowners planning to tear down their homes to make way for constructing new ones have donated the homes to a fire department and claimed a charitable contribution deduction. The fire department uses the home for training exercises in extinguishing fires. The homeowner’s goal is to avoid the costs of demolishing the house while claiming a charitable deduction for the value of the home. However, the IRS and Tax Court have held in such cases that the donated homes have minimal value and disallowed the claimed deductions. A federal appeals court sided with the IRS and Tax Court in barring a charitable deduction where a couple donated their house but not the land, with the understanding that the fire department would use it for training exercises and burn it down within a short period of time. The demolition of the home by the fire department was a benefit to the taxpayers and under the “quid-pro-quo” test, no deduction could be claimed because they could not show that the fair market value of the house exceeded the estimated $10,000 in demolition and debris removal costs that would have been incurred had there been no donation. The donated home had only a minimal value because it could not be used by the fire department for residential purposes but only for training exercises.

Token Items and Membership Benefits That Do Not Reduce Your Deduction

Token items. Popular fund-raising campaigns, such as those for museums, zoos, and public TV, offer token items such as calendars, tote bags, tee shirts, and other items carrying the organization’s logo. You are allowed a full deduction for your contribution if the item is considered to be of insubstantial value under IRS guidelines.

The charity must tell you how much of your contribution is deductible in the solicitation that offers the token item. If the items are insubstantial in value, the charity should tell you that your payment is fully deductible. For example, if in 2017 you contributed at least $53.50, and the offered items cost the charity no more than $10.70, the value of the benefits is ignored and a full 2017 deduction is allowed. A full deduction for 2017 is also allowed if the items were worth no more than 2% of the contribution or $107, whichever is less. The $53.50, $10.70, and $107 amounts change annually for inflation.

Newsletters or program guides that are not of commercial quality are treated as token items having no fair market value or cost if their primary purpose is to inform members about the organization’s activities, and they are not available to nonmembers by paid subscription or through newsstand sales.

Publications with articles written for compensation and advertising are treated as commercial-quality publications for which the organization must figure value to determine if a full deduction is allowed under the “insubstantial value” test. Professional journals, whether or not they have such articles and advertising, will generally be treated as commercial-quality publications that must be valued.

Membership benefits. If you contribute $75 or less for an annual membership in a qualified charity (14.1) and you receive only the following benefits, the benefits can be disregarded and you may deduct your entire payment:

1. Privileges that can be exercised frequently, such as free or discounted parking or admission to organization events, or discounts on gift shop or online merchandise, or
2. Admission to events that are open only to members and the organization’s reasonably projected cost per person for each event excluding overhead (as of the time the membership package is offered) is no more than the annual limit for “low cost articles.” For 2017, the “low cost article” limit is $10.70.

14.4 Unreimbursed Expenses of Volunteer Workers

If you work without pay for an organization listed at 14.1, you may deduct as charitable contributions your unreimbursed expenses in providing the services, such as the out-of-pocket costs of driving your car (gas, oil, parking, tolls) to and from the place of charitable operations. On a trip away from home (20.6) for the organization, you can deduct your unreimbursed travel expenses, including transportation (air, rail, bus, taxi and car costs), meals and lodging.

To qualify for the deduction, the expenses must be incurred for a domestic organization that authorizes you to travel. You may not deduct the value of your donated services.

Substantiating expenses under $250. The IRS does not have a recordkeeping regulation that is specific to unreimbursed volunteer expenses under $250. The Tax Court held in a 2011 case that volunteer expenses of under $250 are subject to the rules for cash gifts of less than $250 (14.14), even though the terms of the cash gift regulation are a bad fit for volunteer expenses. The regulation requires a cash donor (14.14) to have canceled checks or receipts from the charity, or in lieu of either, other reliable written records showing the name of the charity and the date and amount of the contribution. These requirements were not written with volunteer expenses in mind, as a volunteer’s out-of-pocket expenses (supplies, for example) will generally be paid to third parties rather than to the charity itself. In the case before it, the Tax Court held that a volunteer was in substantial compliance with the IRS rules for expenses of less than $250 because she had records showing the name of the payees, and the dates and amounts of payment, the same information that would be on canceled checks from the charity.

Note: Under 2008 proposed regulations, the substantiation requirements for volunteer expenses of under $250 would be waived, but the proposal has not been adopted.

Substantiating expenses of $250 or more. To deduct an unreimbursed expense of $250 or more, such as for a plane ticket or a luncheon you hosted on behalf of the organization, you need, in addition to records substantiating the amount of the expense, a written acknowledgment from the charity (14.14). The acknowledgment must describe your services, and state whether you were provided any goods or services by the charity. If so, an estimate of their value must be given unless the benefits are “intangible religious benefits.” The acknowledgment must be obtained by the date you file your return, but if you file after the due date (or extended due date if you get an extension), the acknowledgment must be obtained by the filing due date, including extensions. For 2017 returns, the due date is April 17, 2018.

Car expenses. If you used your car (or other motor vehicle) to provide volunteer services for a charity, you may deduct either the actual vehicle operating costs (such as gas and oil) that are directly related to your volunteer services, or you may claim a flat mileage rate of 14 cents per mile. The 14-cents-per-mile rate is set by statute and not subject to annual cost-of-living increases. Parking fees and tolls are deductible whether you claim actual expenses or the flat mileage rate.

Other deductible volunteer expenses. In addition to car expenses, you may claim the following unreimbursed expenses:

• Uniform costs required in serving the organization.
• Cost of telephone calls, and cost of materials and supplies you furnished such as stamps or stationery.
• Travel expenses, including meals and lodging on overnight trips away from home as an official delegate to a convention of a church, charitable, veteran, or other similar organization. If you are a member but not a delegate, you may not deduct travel costs, but you may deduct expenses paid for the benefit of your organization at the convention.
• All related expenses in hosting a fund-raiser are deductible, from the invitations to the food and drink.

The IRS does not allow a deduction for “babysitting” expenses of charity volunteer workers. Although incurred to make the volunteer work possible, babysitting costs are a nondeductible personal expense.

Recreational purposes may bar travel expense deduction. To claim a charitable deduction for travel expenses of a research project for a charitable organization, you must show the trip had no significant element of personal pleasure, recreation, or vacation.

14.5 Support of a Student in Your Home

A limited charitable deduction is allowed for support of an elementary or high-school student in your home under an educational program arranged by a charitable organization. If the student is not a relative or your dependent, you may deduct as a charitable contribution your support payments up to $50 for each month the student stays in your home. For this purpose, 15 days or more of a calendar month is considered a full month. You may not deduct any payments received from the charitable organization if any reimbursements are received for the student’s maintenance. The only exception is that if you prepay a “one-time” expense such as a hospital bill or vacation for the child at the request of the child’s parents or the sponsoring charity, and you are later reimbursed for part of your payment, you may deduct your unreimbursed expenses.

To support the deduction, be prepared to show a written agreement between you and the organization relating to the support arrangement. Keep records of amounts spent for such items as food, clothing, medical and dental care, tuition, books, and recreation in order to substantiate your deduction. No deduction is allowed for depreciation on your house.

14.6 What Kind of Property Are You Donating?

Generally, a deduction for the fair market value of donated property may be claimed, but the tax law does not treat all donations of appreciated property in the same way. Whether the full amount of the fair market value of the property is deductible depends on the type of property donated, your holding period, the nature of the philanthropy, and the use to which the property is put by the philanthropy. For donations of motor vehicles, boats, or airplanes valued at over $500, special deduction restrictions and substantiation restrictions apply (14.7).

Save records to support the market value and cost of donated property. Get a receipt or letter from the charitable organization acknowledging and describing the gift. You must get a receipt for donations of property valued at $250 or more (14.14). Lack of substantiation may disqualify an otherwise valid deduction.

If the total claimed value for all of your property donations exceeds $500, you must report the donations on Form 8283 (14.15), which you attach to Schedule A, Form 1040. If the claimed value of a donated item (or group of similar items) exceeds $5,000, you generally must base the valuation on a written appraisal from a qualified appraiser; see 14.15 for details on the appraisal requirements.

Figuring value. When donating securities listed on a public exchange, fair market value is readily ascertainable from newspaper listings of stock prices. It is the average of the high and low sales price on the date of the donation.

To value other property, such as real estate or works of art, you will need the services of an experienced appraiser. Fees paid to an appraiser are not deductible as a charitable contribution, but rather as a miscellaneous itemized deduction (19.1) subject to the 2% of adjusted gross income floor on Schedule A.

Fair market value deductible for appreciated intangible personal property (such as securities) and real estate held long term. Fair market value is deductible where you have held such property long term (longer than one year) and you give it to a publicly supported charity or to a private foundation that qualifies as a 50% limit organization, but you may not deduct more than 30% of adjusted gross income (14.17). A five-year carryover for the excess is allowed (14.18). If the donation exceeds the 30% ceiling, you may consider a special election that allows you to apply the 50% ceiling (14.19).

A contribution of appreciated securities or real estate held long term has two tax advantages that reduce the real cost of making the contribution:

1. Your taxes are reduced by the deduction of the fair market value of the property. For example, you donate appreciated stock that is selling at $1,000. You are in the 25% tax bracket. The deduction for the donation reduces your taxes by $250.
2. You avoid the tax you would have paid on a sale of the stock. Assume that your cost for the stock was $400 and that your regular top bracket is 25%. On a sale at $1,000, you would pay tax of $90 (15% capital gain rate on $600 profit). By donating the stock, you save that $90 plus $250 from the $1,000 charitable deduction, for a total tax savings of $340. Your “cost” for donating the $1,000 asset is $660 ($1,000 – $340).

The IRS ruled that you may not claim a deduction on donated stock if you retain the voting rights, even though the charity has the right to receive dividends and sell the stock. The right to vote is considered a substantial interest and is crucial in protecting a stockholder’s investment.

If you are planning a year-end donation of securities, keep in mind that the gift is generally not considered complete until the properly endorsed securities are mailed or delivered to the charity or its agent (14.1).

Deduction limited to cost for appreciated property not held long term and ordinary income property. This is property that, if sold by you at its fair market value, would not result in long-term capital gain. The deduction for donations of this kind is restricted to your cost for the property. Examples include: stock and other capital assets held by you for one year or less, inventory items donated by business, farm crops, Section 306 stock (preferred stock received as a tax-free stock dividend, usually in a closely held corporation), and works of art (14.9), books, letters, and memoranda donated by the person who prepared or created them. For example, a former Congressman claimed a charitable deduction for the donation of his papers. His deduction was disallowed. His papers were ordinary income property, and since his cost basis in the papers was zero, he could claim no deduction. Depreciable business property is considered ordinary income property to the extent that depreciation would be recaptured as ordinary income on a sale (44.1–44.3). If the cost of the property was fully deducted under first-year expensing (42.3), you have no cost basis and you may not claim a deduction.

Use of property by charity determines whether fair market value or cost is deductible for appreciated tangible personal property held long term. If you donate appreciated tangible personal property held long term, such as works of art (14.9), jewelry, furniture, books, equipment, fixtures (severed from realty), and antique cars, the deduction limit depends on how the charitable organization uses the property. If the property is used by the organization for purposes related to its tax-exempt purpose or function, you may deduct the fair market value.

If the organization puts the property to a use that is unrelated to its tax-exempt purpose or function, the deduction is limited to your cost basis because the fair market value must be reduced by the amount of long-term capital gain that would have been realized if the property had been sold at fair market value. If the charity sells your gift to obtain cash for its exempt purposes, your donation is treated as being put to a nonrelated use by the charity, and your deduction must be reduced by the long-term gain element unless on the date of the donation you could reasonably anticipate that the property would not be sold (or put to another nonrelated use). A certification of exempt use from the charity is required if you claim a deduction exceeding $5,000 and the charity sells the property within three years; see below.

If the donation of tangible personal property is to a 50% deduction limit organization such as a church or college, and you must reduce the deduction as a nonrelated gift, the reduced gift is then subject to the 50% annual deduction ceiling discussed in 14.17. If the organization’s use of the property is related to its tax-exempt charitable purposes, and it is a 50% limit organization, you may deduct the property’s fair market value subject to the 30% of adjusted gross income deduction ceiling (14.17). Alternatively, you may elect to deduct up to 50% of adjusted gross income by reducing the deduction by the long-term gain (14.19).

Deductions of appreciated tangible personal property exceeding $5,000 may be reduced or recaptured on sale by charity within three years. Special certification rules apply to donations of appreciated tangible personal property for which you claim a deduction of more than $5,000:

1. If the charity sells or otherwise disposes of the property during the year that you donated it, your deduction is limited to your cost basis unless the charity provides a written certification of exempt use to the IRS on Form 8282, and gives you a copy. The certification, signed by an officer under penalty of perjury, must either state that the charity’s use of the property was substantial and furthered its tax-exempt purpose or function, or state that a related and substantial use of the property was intended at the time of the donation but it became impossible or unfeasible to implement such intent.
2. If you deduct more than your basis in the property and the charity sells it (or otherwise disposes of it) after the year of contribution but within three years of the contribution, and the charity does not provide the IRS and you with the required certification described in (1) above, you must recapture part of your original deduction. In the year of the sale, you must report as ordinary income the excess of the deduction claimed over your cost basis for the property at the time of the donation. Report the recaptured amount as “other income” on Line 21 of Form 1040.

Donating mortgaged property. A donation of mortgaged property may produce a taxable gain as well as a deduction. Before you give mortgaged property to a charity, have an attorney review the transaction. You may deduct the excess of fair market value over the amount of the outstanding mortgage. However, you may realize a taxable gain. The IRS and Tax Court treat the transferred mortgage debt as cash received in a part-gift, part-sale subject to the rules for bargain sales of appreciated property (14.8). You will realize a taxable gain if the transferred mortgage exceeds the portion of basis allocated to the sale part of the transaction. This is true even if the charity does not assume the mortgage.

Donating capital gain property to private non-operating foundations. You generally may not deduct the full fair market value of gifts of capital gain property to private non-operating foundations that are subject to the 20% deduction ceiling for non–50% limit organizations (14.17). (Capital gain property is property that, if sold by you at fair market value, would result in long-term capital gain.) The deduction must be reduced by the long-term gain that would have been realized if the property had been sold at fair market value. In other words, your deduction is limited to your cost basis.

An exception is available for certain contributions of stock to a private non-operating foundation; see below.

Stock donation to private non-operating foundation. A deduction for fair market value is allowed on a donation to a non-operating private foundation of appreciated publicly traded stock held long term. To qualify, there must be readily available market quotations on an established securities market for the stock on the date of the contribution. If you or family members donated more than 10% of a corporation’s stock, the fair market value deduction is allowed only for the first 10%. Under the family aggregation rule, your contributions of stock in a particular publicly traded corporation are aggregated with those of your spouse, brothers, sisters, parents and grandparents, children, grandchildren, and great-grandchildren to all private non-operating foundations, whether the foundations are related or not. If the 10% limit is exceeded, the excess contributions are subject to the cost basis deduction limitation.

The IRS has ruled that for purposes of applying the 10% limit, you must take into account previous stock contributions that the private foundation sold before the new contributions were made. Once publicly traded stock is donated to a private foundation, it must be counted toward the 10% limit, even if it is later disposed of. Furthermore, the value of each contribution at the time it is made is the value taken into account for applying the 10% limitation; prior contributions are not revalued each time there is a new contribution.

Patents and other intellectual property. If you donate patents or other intellectual property to charity, such as trademarks, trade names, trade secrets, know-how, and certain copyrights and software, you can claim an initial charitable contribution deduction for your cost basis in the property (assuming that is less than its fair market value). Additional deductions may be claimed in the year of the donation and in later years, based on a percentage of the income that the charity realizes from the property.

The additional deductions are allowed on a sliding scale percentage basis for the 10-year period beginning on the date of the contribution. In order to obtain the additional deductions, you must accompany the donation with a written statement to the charity that includes your name, address, and taxpayer identification number, a description of the intellectual property, and the date of the contribution. The statement must specify that you intend to treat the contribution as a qualified intellectual property contribution and will claim additional deductions for the allowable annual percentage of the charity’s income from the property.

For each year that the charity realizes net income from the property in the 10-year period beginning on the date of the contribution, the charity must report the income to the IRS on Form 8899. A copy of Form 8899 is sent to you and the income shown may be used as the basis for claiming an additional contribution deduction.

For further details, see the instructions to Form 8899 and IRS Publication 526.

U.S. Saving Bonds. You may not donate U.S. Saving Bonds, such as EE bonds, because you may not transfer them. They are nonnegotiable. You must first cash the bonds and then give the proceeds to the charity, or surrender the bonds and have new ones registered in the donee’s name. When you do this, you have to report the accrued interest on your tax return. Of course, you will get a charitable deduction for the cash gift.

Gift of installment obligations. You may deduct your donation of installment notes to a qualified philanthropy. However, if you received them on your sale of property that you reported on the installment basis, you may realize gain or loss on the gift of the notes (5.28). The amount of the contribution is the fair market value of the obligation, not the face amount of the notes.

14.7 Cars, Clothing, and Other Property Valued Below Cost

If you donate property whose value has declined below your cost, your deduction generally is limited to the fair market value. However, the rules for cars, trucks, boats, and airplanes are more complicated. Strict substantiation requirements apply to prevent donors from claiming inflated deductions for donated vehicles where the charity actually received much less on a sale to raise cash; see below.

If you are planning a donation of stock or other investment or business property worth less than your basis (5.20), consider selling the property and then donating the proceeds. If you donate the property, your deduction is limited to the fair market value and you cannot deduct a loss. If you first sell the property, you can claim a loss on the sale and then claim a charitable contribution on your donation of the sale proceeds; see the Example below.

Clothing or household items. You can claim a deduction for used clothing or household items only if they are in good used condition or better. Household items include furniture or furnishings, linens, appliances or electronics, but not antiques, art, collections, or jewelry. Your deduction for “good condition” clothing or household items is limited to their fair market value, which is usually much less than your original cost. Prices paid in thrift shops for similar items are an indication of fair market value. If you have photographs of the donated items, or a statement describing them from the charity, this would help support your valuation should the IRS later question your deduction. If an item is valued at over $500 in a qualified appraisal that you attach to your return, a deduction is allowed even if the item is not in good used condition or better.

Cars, other motor vehicles, boats, and airplanes. You must obtain a timely written acknowledgment from the charity to substantiate a deduction for a car or other motor vehicle, boat, or airplane with a claimed value of over $500. The required acknowledgment must be on Form 1098-C or an equivalent statement from the charity. Copy B of the Form 1098-C (or equivalent acknowledgment) must be attached to your return; if you do not attach the form to your return, the IRS will disallow your deduction. If you e-file your return, attach the Copy B as a pdf attachment if your software program allows this; otherwise you must attach Copy B of Form 1098-C to Form 8453 and mail the forms to the IRS. You also must attach Form 8283 if your total deduction for all property donations exceeds $500 (14.15). Vehicles held primarily for sale, such as dealer inventory, are not subject to the acknowledgment rules or the deduction restrictions in the following paragraphs (14.12).

If the charity sells the vehicle for more than $500 to a buyer other than a needy individual (see below) without having put it to a significant intervening use, or without materially improving it, your deduction is limited to the gross sales proceeds. You must be sent the Form 1098-C (or equivalent substitute) within 30 days of the sale. The charity must certify in Box 4a that the sale was made in an arm’s-length transaction to an unrelated party. The amount of the gross proceeds (not reduced by expenses or fees) will be shown in Box 4c.

If the charity intends to significantly use the vehicle in furtherance of its regularly conducted activities or to materially improve it before selling it, Form 1098-C (or other acknowledgment) must be provided to you within 30 days of the donation. In Box 5a, the charity must certify its intent and in Box 5c it must certify a detailed description of the planned use or improvement, including the intended duration of such use or improvement. If Box 5a is checked, you may take a deduction equal to the fair market value of the vehicle on the date of contribution.

Fair market value is also deductible if the charity checks Box 5b to certify that the donated vehicle will be given to a needy individual, or sold to such to an individual for significantly less than fair market value, in furtherance of the organization’s charitable purpose. You must be given Form 1098-C (or equivalent acknowledgment) with Box 5b checked within 30 days of the donation.

Copy B of Form 1098-C states that the deduction may not exceed the gross sales proceeds unless Box 5a or 5b is checked. If fair market value is deductible because Box 5a or 5b is checked, value may be based on an established used-vehicle-pricing guide, provided the amount is for a comparable model in similar condition and sold in the same area.

In Boxes 6a–6c of Form 1098-C, the charity indicates whether any goods or services were provided to the donor and, if so, they are described and a good faith estimate of their fair market value is shown. The deduction must be reduced by the value of the goods/services provided, with one exception. If the only benefits provided to the donor are intangible religious benefits (such as admission to a religious ceremony), Box 6c will be checked and the deduction does not have to be reduced by such benefits.

If the claimed value of the vehicle is at least $250 but not over $500. If the claimed value of a car, other motor vehicle, boat, or airplane (but not dealer property) is at least $250 but not over $500, the contribution is not acknowledged on Form 1098-C (or equivalent), but you must obtain a written acknowledgment meeting the general substantiation rules (14.14) by the due date for filing.

If the charity sells the donated vehicle (other than a sale to a needy person in furtherance of charitable purposes) without a significant intervening use or material improvement, and the gross sale proceeds are $500 or less, IRS guidelines allow a deduction to be claimed for fair market value if that exceeds the proceeds, but no more than $500 can be deducted. For example, if the gross sale proceeds are $400 but the donor can substantiate a fair market value of $450, a deduction of $450 would be allowed, provided a qualified acknowledgment (14.14) is obtained. If the donor could substantiate a fair market value exceeding $500, the deduction would be limited to $500.

14.8 Bargain Sales of Appreciated Property

A sale of appreciated property to a philanthropy for less than fair market value allows you to claim a charitable deduction while receiving proceeds from the sale. However, the sale is divided into two parts—the sale and the gift—and you must pay a tax on the part of the gain attributed to the sale.

To compute gain on the sale, you allocate the adjusted basis of the property between the sale and the gift following these steps:

You may deduct the excess of the fair market value over the sales proceeds if the property is capital gain property (gain is long-term capital gain) for which full market value would be deductible on a straight donation (no sale) under the rules in 14.6. Thus, if the property is securities or real estate held long term or long-term tangible personal property related to the charity’s exempt function, you may deduct the excess of the fair market value over the sale proceeds; see Example 1 below. However, if a deduction for the property (assuming no sale) would be reduced to cost basis as discussed in 14.6, your charitable deduction on the bargain sale is also reduced; see Example 2 below. This reduction affects sales of capital assets held short term; ordinary income property; tangible personal property not related to the charity’s exempt function; depreciable personal property subject to recapture; and sales of capital gain property to private non-operating foundations.

Basis allocation applies even if a deduction is barred by the annual ceiling. The basis allocation rules for determining gain on a bargain sale apply even if the annual deduction ceilings (14.17) bar a deduction in the year of the donation and in the five-year carryover period.

14.9 Art Objects

You may claim a charitable deduction for a painting or other art object donated to a charity. The amount of the deduction depends on (1) whether you are the artist; (2) if you are not the artist, how long you owned it; and (3) the type of organization receiving the gift.

If you owned the art work short term, your deduction is limited to cost, under the rules applying to donations of ordinary income property (14.6).

If you owned the art work long term (14.6), your deduction depends on the way the charity uses the property. If the charity uses it for its exempt purposes, you may deduct the fair market value. However, if the charity uses it for unrelated purposes, your deduction is reduced by 100% of the appreciation. A donation of art work to a general fund-raising agency would be reduced because the agency would have no direct use for it. It would have to sell the art work and use the cash for its exempt purposes.

Deductions of over $5,000 for art donations (as well as other types of appreciated tangible personal property) may be limited or recaptured if the charity disposes of the property within three years (14.6).

Appraisals. Be prepared to support your deduction with detailed proof of cost, the date of acquisition, and how value was appraised. The appraisal fee is treated as a “miscellaneous” itemized deduction subject to the 2% of adjusted gross income floor (19.1). See the discussion of appraisal requirements later in this chapter (14.15).

The IRS has its own art advisory panel to assess whether the fair market value claimed for donated art works is reasonable.

Requesting advance valuation of art from the IRS. To avoid a later dispute, you may ask the IRS for an advance valuation of art that you have had appraised at $50,000 or more. A request for an IRS Statement of Value (SOV) may be submitted for income tax, gift tax, or estate tax purposes. The IRS has the discretion to value items appraised at less than $50,000 if the SOV request includes at least one item appraised at $50,000 or more, and the IRS determines that the valuation is in the best interest of efficient tax administration.

A request for an SOV must be submitted to the IRS before filing the tax return reporting the donation. The request must include a copy of an appraisal for the item of art and a $5,700 fee, which pays for an SOV for up to three items of art. There is an additional charge of $290 for each item of art over three. It takes the IRS between six and 12 months to issue an SOV.

If the IRS agrees with the value reported on the appraisal, the IRS will issue an SOV approving the appraisal. If the IRS disagrees, the IRS will issue an SOV indicating its own valuation and stating the reasons it disagrees with the appraised amount. Regardless of whether you agree with the IRS appraisal, the SOV must be attached to and filed with the return reporting the donation. If you file the return before the SOV is issued, a copy of your request for the SOV must be attached to your return and on receipt of the SOV, an amended return must be filed with the SOV attached. For further SOV details, see IRS Publication 561 and Revenue Procedure 96-15, as well as the “Art Appraisal Services” page at IRS.gov.

Donating a fractional interest in an art collection. You may deduct the value of a donated partial interest in an art collection, such as where you give a museum the right to exhibit the works for a specific period during the year. The deduction is allowed even if the museum does not take possession of the art works, provided it has the right to take possession. However, if you made a fractional donation after August 17, 2006, and later donate an additional fractional interest in the same property, the deduction for the later contribution is based on the fair market value of the property at the time of the initial fractional contribution where that is less than the value at the time of the later contribution. Furthermore, if you do not transfer your entire remaining interest to the same charity within 10 years of the initial fractional donation, or, if earlier, the date of your death, your charitable contributions will have to be recaptured, plus interest, and a penalty equal to 10% of the recaptured amount will be imposed. See Publication 526 for further details.

Keeping a reversionary interest. The IRS may challenge a charitable deduction where you retain some control over the donated property. However, if the possibility of the property reverting back to you is considered to be remote, a deduction may be allowed. For example, a taxpayer who donated her art collection to a museum was allowed to claim a charitable deduction even though she retained the right to decide where and how the art would be displayed. Disputes concerning art displays would be settled by a mutually acceptable museum curator. If the museum breached a condition, it had a period of time to cure the violation. If the violation was not cured, the ownership would revert back to the donor. The IRS allowed the deduction; the retained rights were fiduciary in nature and the possibility of the art reverting to the donor was so remote as to be negligible.

14.10 Interests in Real Estate

No deduction is allowed for the rental value of property you allow a charity to use free of charge. This is the case even if the property is used directly in furtherance of the organization’s charitable purpose; see the Example below.

If you donate an undivided fractional part of your entire interest, a deduction will be allowed for the fair market value of the proportionate interest donated.

A donation of an option is not deductible until the year the option to buy the property is exercised.

Remainder interest in home or farm. You may claim a charitable deduction for a gift of the remainder value of a residence or farm donated to a charity, even though you reserve the use of the property for yourself and your spouse for a term of years or life. Remainder gifts generally must be made in trust. However, where a residence or farm is donated, the remainder interest must be conveyed outright, not in trust. A remainder interest in a vacation home or in a “hobby” farm is also deductible. There is no requirement that the home be your principal residence or that the farm be profitable.

Qualified conservation contributions. A deduction may be claimed for the contribution of certain partial interests in real property to government agencies or publicly supported charities for exclusively conservational purposes. Qualified conservation contributions include: (1) your entire interest in real property other than retained rights to subsurface oil, gas, or other minerals; (2) a remainder interest; or (3) an easement, restrictive covenant, or similar property restriction granted in perpetuity. The contribution must be in perpetuity and further at least one of the following “conservation purposes”—preservation of land areas for the general public’s outdoor recreation, education, or scenic enjoyment; preservation of historically important land areas or structures; or the protection of plant, fish, or wildlife habitats or similar natural ecosystems.

If an easement is donated and the property is subject to a mortgage, the mortgagee’s interest must be subordinated to the charity’s conservation easement at the time it was granted. In one case, the Tenth Circuit Court of Appeals agreed with the Tax Court and the IRS that a land conservancy’s easement rights on mortgaged property were not protected in perpetuity when the prior owner’s deed of trust was not subordinated to the easement at the time it was granted. A deduction was disallowed although the prior owner signed a subordination agreement two years after the donation. If the donors had defaulted on their promissory note between the time of the donation and the signing of the subordination agreement, the prior owner could have brought foreclosure proceedings and eliminated the conservation easement. The Appeals Court held that failure to meet the subordination requirement when the easement was granted could not be excused; the likelihood of a default by the donor was not so remote as to be negligible.

To meet the requirement that the conservation purpose of the easement be protected “in perpetuity”, there must be legally enforceable restrictions that prevent you from using your retained interest in the property in a way contrary to the intended conservation purpose. The donee organization must be prohibited from transferring the contributed interest except to other organizations that will hold the property for exclusively conservational purposes.

The Fourth Circuit Court of Appeals agreed with the Tax Court and the IRS that the “in perpetuity” test was not met where a donation agreement allowed the donor to substitute other property to be subject to the easement. A deduction was denied even though the charity would have to agree to any substitution and the conservation purposes of the easement would have to be protected after the substitution. IRS regulations allow a change in the property subject to the easement only where continued use of the original property for conservation purposes becomes impossible or impractical.

If you retain an interest in subsurface oil, gas, or minerals, surface mining must generally be specifically prohibited. However, where the mineral rights and surface interests are separately owned, a deduction will be allowed if the probability of surface mining is so remote as to be considered negligible. The exception does not apply if you are related to the owner of the surface interest or if you received the mineral interest (directly or indirectly) from the surface owner.

The Tax Court has held that the written acknowledgment requirement for donations of $250 or more (14.14) can be met by the written agreement conveying a conservation easement, “taken as a whole.” Thus, even where the easement agreement does not specifically state whether the donor received goods or services in exchange as required by the acknowledgment rule (14.14), the overall terms of the agreement can indicate that no goods or services were received.

Contributions valued at over $5,000 must be supported by a written appraisal from a qualified appraiser (14.15).

Historic building façade easements. A donation of a façade easement with respect to a certified historic structure in a registered historic district, other than one listed in the National Register, is allowed only if the easement preserves the entire exterior, including the space above as well as the front, rear, and sides of the building. The easement must bar exterior changes inconsistent with the historical character of the building. A written agreement between the donor and the donee must certify that the donee is a qualifying historic preservation organization with the resources and commitment to enforce the easement.

The donor must attach to his or her tax return a qualified appraisal of the easement, photographs of the building exterior, and a description of all zoning laws and similar restrictions on development.

If a deduction of over $10,000 is claimed for a façade easement, a $500 fee must be paid or no deduction will be allowed. The fee may be paid electronically or sent to the IRS with Form 8283-V. The $500 fee may be claimed as a miscellaneous itemized deduction, subject to the 2% of adjusted gross income floor (19.16)

Reduction for prior rehabilitation credit. The deduction for a historic building easement must be reduced if a rehabilitation tax credit (31.8) was claimed for the building in the five years preceding the donation.

14.11 Life Insurance

You may deduct the value of a life insurance policy if the charity is irrevocably named as beneficiary and you make both a legal assignment and a complete delivery of the policy. A deduction may be disallowed where you reserve the right to change the beneficiary.

The amount of your deduction generally depends on the type of policy donated. Your insurance company can furnish you with the information necessary to calculate your deduction. In addition, you may deduct premiums you pay after you assign the policy.

Deducting premium payments on donated policy. If you assign a life insurance policy to a charity and continue to pay the premiums, you generally may deduct the premiums. However, in states where charities do not have an “insurable interest” in the donor’s life, the IRS may challenge income tax and gift tax deductions for the premium payments. The IRS took this position in a private ruling interpreting New York law. In response, New York amended its insurance code to allow individuals to buy a life insurance policy and immediately transfer it to a charity. The IRS then revoked the earlier ruling but it did not announce a change in its position. Thus, the IRS may challenge premium deductions of donors in other states where a charity’s insurable interest is not clearly provided by state law.

14.12 Business Inventory

Self-employed business owners generally may not deduct more than cost for donations of inventory. If a charitable deduction is claimed, costs incurred in a year prior to the year of donation must be removed from opening inventory and excluded from the cost of goods sold when figuring business gross profit for the year of the contribution.

No contribution deduction is allowed for a gift of merchandise that was produced or acquired in the year donated. Instead, the cost is added to the cost of goods sold to figure gross profit for the year of the contribution. Business deductions are not subject to the percentage limitation applied to donations.

14.13 Donations Through Trusts

Outright gifts are not the only way to make deductible gifts to charities. You may transfer property to a charitable lead trust or a charitable remainder trust to provide funds for charity.

A charitable lead trust involves your transfer of property to a trust directed to pay income to a charity you name, for the term of the trust, and then to return the property to you or to someone else. A charitable remainder trust is one that provides income for you or another beneficiary for life, after which the property passes to a charity.

Trust arrangements require the services of an experienced attorney who will draft the trust in appropriate form and advise you of the tax consequences.

Deductions for gifts of income interests in trust. Current law is designed to prevent a donor from claiming an immediate deduction for the present value of trust income payable to a charity for a term of years. In limited situations, you may claim a deduction if either: (1) You give away all of your interests in the property to qualifying (14.1) organizations. For example, you put your property in trust, giving an income interest for 20 years to a church and the remainder to a college. A deduction is allowed for the value of the property. Or (2) you create a unitrust or annuity trust, and are taxed on the income. A unitrust for this purpose provides that a fixed percentage of trust assets is payable to the charitable income beneficiary each year. An annuity trust provides for payment of a guaranteed dollar amount to the charitable income beneficiary each year. A deduction is allowed for the present value of the unitrust or annuity trust interest.

Because income remains taxable to the grantor, alternative (2) will probably not be chosen, unless the income of the trust is from tax-exempt securities. If such a trust is created, a tax may be due if the donor dies before the trust ends or is no longer the taxable owner of trust income. The law provides for recapture of part of the tax deduction, even where the income was tax exempt.

Charitable remainder trusts. A charitable deduction is allowable for transfers of property to charitable remainder trusts only if the trust meets these requirements: The income payable for a noncharitable income beneficiary’s life or a term of up to 20 years must be guaranteed under a unitrust or annuity trust. If a donor gives all of his or her interests in the property to the charities, the annuity or unitrust requirements need not be satisfied. The value of the charitable deduction allowable for a gift in trust is determined by IRS tables.

14.14 Records Needed To Substantiate Your Contributions

The type of records you must keep to substantiate your donations generally depends on their amount and whether you are contributing cash or property.

Cash contributions. A deduction is not allowed for a cash contribution, regardless of amount, unless you have a receipt or bank record to substantiate it. This includes donations made by check, credit card, electronic fund transfer, or gift card redeemable for cash. You need a canceled check, bank copy of both sides of a canceled check, electronic fund transfer receipt, monthly account statement, credit card statement, or written receipt (including e-mail) that shows the name of the organization and the date and amount of the contribution. Maintaining a diary or log is not sufficient substantiation. If you volunteer your services to a charity, you need similar records to substantiate a deduction for your out-of-pocket expenses of under $250 (14.4).

For a contribution of $250 or more, a canceled check or receipt showing the name of the organization and the date and amount of your contribution is not enough. You must timely obtain a written acknowledgment from the charity, as described below.

For a contribution made by payroll deduction, you need to keep a pay stub, Form W-2, or other employer-furnished document showing the amount withheld as a donation, along with a pledge card or similar document from the charity. If the amount withheld from a single paycheck is $250 or more, the pledge card must include a statement to the effect that no goods or services were provided in return for the contribution.

Noncash contributions under $250. As proof of your donation, you need a dated receipt from the organization that provides a reasonably detailed description of the property. However, if it is impractical to obtain a receipt, as where you deposit canned food at a charity’s drop site, you can satisfy the recordkeeping requirement with a contemporaneous notation that documents the contribution.

You need a written acknowledgment from the charity for cash or noncash contributions of $250 or more. A written acknowledgment is mandatory to prove cash or noncash contributions of $250 or more; see below for content details. The acknowledgment requirement does not apply if the donation is less than $250, but if the contribution exceeds $75, you must be given a disclosure statement (see below) from the charity estimating the value of any benefits you received in return for the donation.

The IRS exempts from the acknowledgment requirement grantors of a charitable lead trust, charitable remainder annuity trust, or charitable remainder unitrust. Since a specific charity does not have to be designated as beneficiary at the time the trust transfer is made, there may be no organization available to provide an acknowledgment.

A separate acknowledgment rule applies if you are deducting over $500 for a motor vehicle, boat, or airplane. You must attach Copy B of Form 1098-C to your return (14.7).

Content of acknowledgment. An acknowledgment for a donation of $250 or more may be a letter, e-mail, computer-generated form, or postcard. If you gave cash, the amount of the donation must be shown. If you gave property, the property must be described in the acknowledgment, but the charity does not have to value it. If the acknowledgment does not show the date of the contribution, you need a dated bank record or receipt.

The acknowledgment must state whether or not you have received any goods or services from the charity in exchange for the contribution. If you have, the receipt must include a statement describing such benefits and estimating their value. However, “token” items and certain membership benefits, as described in 14.3, do not have to be described or valued. There is also an exception if the contribution is to a religious organization and the only benefits received are “intangible” religious benefits, such as admission to religious ceremonies; these do not have to be described or valued, but the statement must indicate that they are the sole benefits provided.

Deadline for 2017 donation acknowledgments. For a 2017 contribution, the deadline for obtaining an acknowledgment is the date you file your 2017 return, but no later than the filing due date of April 17, 2018 or, if you obtain a filing extension, the extended due date. Keep the acknowledgment with your records; it does not have to be attached to your return.

Payments throughout the year. For purposes of the $250 threshold for an acknowledgment, each contribution made during the year is separately considered. Thus, for small donations (each under $250) made during the year, you do not have to obtain an acknowledgment even if they total $250 or more.

If contributions are made by payroll deductions from your wages, the amount withheld from each paycheck is treated separately. An acknowledgment is not required unless withholding on a single paycheck is at least $250. A pay stub or Form W-2 from the employer indicating the amount of a single withholding over $249 is considered a valid “acknowledgment”; a pledge card or other document from the charity must state that you have not received benefits in exchange for the payroll deduction contribution.

A charity must provide a disclosure statement if you contribute more than $75 and receive benefits. If you contribute more than $75 but less than $250 to a charity, the charity is required to give you a “disclosure” statement that estimates the value of any benefits you received, such as concert tickets or books. The statement must instruct you to deduct only the excess of your contribution over the value of the benefits. Certain “token” items and membership benefits, and “intangible” religious benefits, can be disregarded; see Table 14-1. If a required disclosure statement is not provided when contributions are solicited, it must be provided when you make a contribution exceeding $75.

Noncash contributions. For donations of property, the records you must keep depends on the amount of the deduction claimed. For a noncash contribution of under $250, you need as proof of your donation a dated receipt from the organization that provides a reasonably detailed description of the property. However, if it is impractical to obtain a receipt, as where you deposit canned food at a charity’s drop site, you can satisfy the recordkeeping requirement with a contemporaneous notation that documents the contribution.

For a noncash contribution of $250 or more, you must obtain a written acknowledgment from the charity as described above. The acknowledgment must indicate if you received benefits in exchange for your contribution; see the above discussion for acknowledgment details.

To claim a deduction for more than $500 but no more than $5,000, you need, in addition to the written acknowledgment, records that show when and how you got the property (purchase, gift, inheritance), your cost or other basis for the property, and the fair market value; you must report this information on Form 8283 (14.15).

For a deduction over $5,000, you need the written acknowledgment and in most cases you also need an appraisal from a qualified appraiser. You must summarize the appraisal on Form 8283 but generally do not have to attach it to your return. see 14.15.

14.15 Form 8283 and Written Appraisal Requirements for Property Donations

You must attach Form 8283 to your Form 1040 for 2017 if you claim a total deduction of over $500 for all of your donations of property. The IRS may disallow your deduction if you fail to attach Form 8283. In Part I of Form 8283, you must identify the charity, describe the donated property, provide the value of the property on the date of the donation and indicate how you valued it (such as by appraisal, catalog for a collectible, or thrift shop value for clothing or household furniture). For each item valued at over $500, you also have to indicate how and when you acquired the property, and your cost or other basis.

If you are claiming a deduction exceeding $5,000 for an item, or for a group of similar items (such as paintings, buildings, coins, stamps, or books), you generally need a written appraisal from a qualified appraiser. The appraiser must sign a declaration in Part III of Section B of Form 8283 that he or she is unrelated to you and meets the other requirements for qualified appraisers. The appraisal must be made no earlier than 60 days before your donation, and you must receive it by the due date (including extensions) of the return on which you claim the deduction.

Failure to obtain a qualified appraisal can cost you a deduction even if the value you claim for the property on Form 8283 is a fair value. In one case, the Tax Court sided with the IRS in completely disallowing deductions for property worth about $18.5 million because the donor (a real estate broker and certified real estate appraiser) appraised the properties himself. The Tax Court, although sympathetic to the donor, held that even though the contributions were not overvalued on Form 8283, and may well have been undervalued, the deductions had to be completely disallowed because a timely appraisal from an independent qualified appraiser had not been obtained.

You do not need an appraisal for a car, boat, or airplane if your deduction is limited to the gross proceeds from its sale (14.17), or for publicly traded securities, non-publicly-traded securities of $10,000 or less, intellectual property (14.6), or business inventory.

Whether or not a written appraisal is required for property valued at over $5,000, you must describe the property, value it, and provide your cost and other acquisition details on Form 8283. in Section B, Part 1.

The appraisal itself should be kept with your records and does not have to be attached to your return except in two situations: If you are claiming a deduction of $20,000 or more for art, you must attach a complete copy of the appraisal to Form 8283 and you may be asked by the IRS to submit a color photograph (8” × 10”) or a slide (4” × 5”) of the art. If the claimed deduction exceeds $500,000, the qualified appraisal must be attached to your return (assuming no exception to the appraisal requirement). See the Form 8283 instructions for further details on the appraisal requirements.

Donee acknowledgment. For property donations exceeding $5,000, the donee organization must acknowledge the receipt of the property in Section B, Part IV of Form 8283. If the organization sells or otherwise disposes of the property within three years of the donation, it must file Form 8282 with the IRS and give you a copy.

Penalty for overvaluation. You may be penalized for a substantial overvaluation of donated property (14.16).

Appraisal fees. A fee paid to an appraiser is not considered a charitable deduction but is deductible as a “miscellaneous” expense subject to the 2% of adjusted gross income floor (19.1).

14.16 Penalty for Substantial Overvaluation of Property

If the IRS disallows a portion of your claimed deduction for appreciated property on the grounds that you have overvalued it, you may be subject to a penalty as well as additional tax. Depending on the extent of the overvaluation, a 20% or 40% penalty may apply. No penalty is imposed unless the overvaluation results in a tax underpayment exceeding $5,000.

20% penalty. If the claimed value of donated property is 150% or more of the correct value, the penalty is 20% of the tax underpayment resulting from the overvaluation, provided the underpayment exceeds $5,000.

40% penalty. If the claimed value of donated property is 200% or more of the correct value, the penalty is 40% of the tax underpayment resulting from the overvaluation, provided the underpayment exceeds $5,000.

Reasonable cause exception for relying on appraisal. The 20% penalty (but not the 40%) may be avoided under a reasonable cause exception if you relied on a qualified appraisal prepared by a qualified appraiser and, in addition, you made a good faith investigation of the value of the property.

14.17 Ceiling on Charitable Contributions

Unless you make donations that are very substantial in relation to your adjusted gross income (Line 38, Form 1040), you do not have to be concerned with the deduction ceilings discussed in this section. For cash contributions, the deduction ceiling is generally 50% of adjusted gross income, but in some cases a 30% limit applies. For property donations, the deduction limit is generally 30% of adjusted gross income, although it sometimes is 50% or even 20%. As detailed below, the specific limit for each donation depends on whether it is made to a “50% limit organization”, whether it is capital gain property, and whether the special 50% or 100% limit for qualified conservation contributions applies. Where you have made contributions subject to different ceilings, the ceilings are applied in a specific order and are subject to an overall ceiling of 50% of adjusted gross income, except for the 100% limit that qualified farmers and ranchers can claim for qualified conservation contributions. If your deduction is limited by any of the ceilings, a five-year carryover is allowed for the excess, but the carryover period is extended to 15 years for qualified conservation contributions(14.18).

Volunteer expenses. The deduction ceiling for unreimbursed expenses you incur doing volunteer work for a charity (14.4) is 50% of adjusted gross income if your services were for a 50% limit organization such as a church or college (see the list below), or 30% of adjusted gross income if the services were on behalf of an organization other than a 50% limit organization.

30% or 20% limit for contributions for the use of an organization. If a donation is treated as for the use of, rather than directly to, any organization, it is deductible under a 30% or 20% of adjusted gross income ceiling. A contribution is “for the use of” an organization if it is held in a legally enforceable trust or similar arrangement. Such contributions include a deductible charitable unitrust or annuity trust income interest, as well as a charitable remainder trust transfer if the trust provides that after the death of the income beneficiary, the property is to be held in the trust for the benefit of the charity, rather than distributed to the charity (14.13).

The 20% ceiling applies to contributions of capital gain property (capital assets held over one year) that are for the use of any organization, including 50% limit organizations.

The 30% ceiling applies to contributions of non-capital gain property, such as cash, ordinary income property, and capital assets held short term, that are for the use of any organization, including 50% limit organizations.

Deductible expenses for supporting a student in your home (14.5) are considered to be for the use of a charitable organization and thus subject to the 30% ceiling.

When applying the deduction ceilings (see “Applying the Deduction Ceilings” on the next page), Steps 2 and 4 combine contributions that are treated as “for the use of” an organization, and thus subject to the above 30% or 20% ceilings, with the 30% or 20% ceilings described below for “Contributions to Non-50% Limit Organizations”.

Contributions to 50% Limit Organizations

Organizations in the 50% limit category include churches, schools, publicly supported charities, and private foundations in the list below. Cash contributions to such organizations are deductible up to 50% of adjusted gross income and contributions of capital gain property held long term generally are deductible up to 30% of adjusted gross income.

The 50% deduction ceiling also applies to donations to the United States, Puerto Rico, a U.S. possession, a state, a political subdivision of a state or U.S. possession, or an Indian tribal government.

50% ceiling. Contributions of cash, ordinary income property, and capital gain property held short term are deductible up to 50% of adjusted gross income if made to the following types of charitable organizations:

• Churches, synagogues, mosques, and other religious organizations.
• Schools, colleges, and other educational organizations that normally have regular faculties and student bodies in attendance on site.
• Hospitals and medical research organizations associated with hospitals.
• Government-supported or publicly supported foundations for state and municipal universities and colleges.
• Religious, charitable, educational, scientific, or literary organizations that receive a substantial part of their financial support from the general public or a government unit. Libraries, museums, drama, opera, ballet and orchestral societies, community funds, the American Red Cross, the Heart Fund, and the United Way are in this category. Also included are organizations to prevent cruelty to children or animals, or to foster amateur sports (provided they do not provide athletic facilities or equipment).
• Private operating foundations.
• Private non-operating foundations that distribute their contributions annually to qualified charities within 2 months after the end of their taxable year.
• Private non-operating foundations that pool donations and allow donors to designate the charities to receive their gifts, if the foundation pays out all income within 2 months after the end of the tax year.
• Organizations that normally receive more than one-third of their support from the general public or governmental units.

30% ceiling for capital gain property held long term. The deduction ceiling is generally 30% (not 50%) of adjusted gross income where you donate to a 50% limit organization property that would have resulted in long-term capital gain had you sold it at fair market value.

The 30% ceiling applies where the fair market value of the property is deductible under the rules discussed in 14.6. This includes donations of appreciated securities and real estate held long term. It also includes donations of appreciated tangible personal property (such as furniture or art) held long term where the organization’s use of your gift is directly related to its tax-exempt charitable purposes.

However, you may elect to apply the 50% ceiling instead of the 30% ceiling to such property donations if you reduce the fair market value of the property by the appreciation (14.19).

If you donate tangible personal property held long term that is not used by the organization for its tax-exempt charitable purposes, so that your deduction must be reduced for the appreciation (14.6), the reduced amount is deductible under the 50% ceiling.

Contributions to Non–50% Limit Organizations

If a contribution is made to a qualifying organization that is not in the above list of 50% limit organizations, a deduction ceiling of 30% or 20% of adjusted gross income applies. Organizations in this category include veterans’ organizations, fraternal societies, nonprofit cemeteries and private non-operating foundations that do not meet the payout requirements for 50% limit status.

The 30% limit applies to contributions of cash, ordinary income property, and capital gain property held short term. The 20% limit applies to contributions of capital gain property held long term (more than one year). However, the actual ceiling may be less than 30% or 20% of adjusted gross income where in the same year you have made contributions to 50% limit organizations. In that case, follow Steps 2 and 4 below in applying the deduction ceilings.

Qualified Conservation Contributions

The deduction limit for a qualified conservation contribution (14.10) is 50% of your adjusted gross income reduced by the deduction for other donations. The 50% ceiling applies instead of the

usual 30% or 20% limit for capital gain property. For a qualified farmer or rancher the limit is 100% rather than 50% of adjusted gross income. The 100% limit applies if over 50% of gross income is from farming or ranching. The special 50% and 100% limits for qualified conservation contributions are applied after other contributions are taken into account; see steps 5 and 6 under “Applying the Deduction ceilings” below.

Applying the Deduction Ceilings

The various deduction ceilings are applied in a specific order, with the total deduction for the year limited to 50% of adjusted gross income. Check above for the ceilings that apply to your donations and then apply the ceilings in the following order. See the discussion of carryover rules (14.18) if a portion of your deduction is barred by the deduction ceilings.

1. 50% of adjusted gross income ceiling for contributions to 50% limit organizations.
2. 30% of adjusted gross income ceiling for (1) contributions to organizations that are not 50% limit organizations, except for contributions of capital gain property subject to the 20% ceiling under Step 4 below, and (2) contributions that are “for the use of” any organization, including 50% limit organizations, except for contributions of capital gain property subject to the 20% ceiling under Step 4 below.

   If any contributions to 50% limit organizations were made, including donations of capital gain property that are subject to the 30% ceiling under Step 3 below, this Step 2 ceiling is the lesser of (1) 30% of adjusted gross income or (2) 50% of adjusted gross income minus the contributions to the 50% limit organizations.

3. 30% of adjusted gross income ceiling for contributions of capital gain property to 50% limit organizations.

   If contributions qualifying for the 50% ceiling (Step 1) were made, your deduction for these 30% limit contributions is the lesser of (1) 30% of adjusted gross income or (2) 50% of adjusted gross income minus the contributions qualifying for the 50% ceiling.

4. 20% of adjusted gross income ceiling for contributions of (1) capital gain property to or for the use of organizations that are not 50% limit organizations, and (2) capital gain property for the use of 50% limit organizations.

   If contributions are deductible under any of the previous ceilings (Steps 1–3), you may deduct contributions subject to the 20% ceiling only to the extent that there is any adjusted gross income remaining under the overall 50% adjusted gross limit.

5. 50% of adjusted gross income ceiling for qualified conservation contributions. Adjusted gross income must be reduced by any contributions in Steps 1 through 4 before applying the 50% ceiling.
6. 100% of adjusted gross income ceiling for qualified conservation contributions made by farmers and ranchers. Adjusted gross income must be reduced by any contributions in Steps 1 through 5 before applying the 100% ceiling.

14.18 Carryover for Excess Donations

If you make donations that are not deductible because they exceed the 50%, 30%, or 20% of adjusted gross income ceilings (14.17), you may carry the excess over the next five years. A 15-year carryforward applies for donations of qualified conservation contributions subject to the special 50% and 100% of adjusted gross income ceilings (14.17).

In each carryover year, the original percentage ceiling applies. For example, where contributions of appreciated long-term intangible personal property or real estate (or tangible personal property put to a related use by the charity) exceed the 30% ceiling for capital gain property (14.17), the excess remains subject to the 30% ceiling in the carryover years.

In any carryover year, you must first figure your deduction for contributions in the current year under the applicable 50%, 30%, or 20% ceilings. For each category of property carried over, the carryover contributions are deductible only after the deduction for current year donations is figured. The total deduction in the carryover year, for both current year and carryover contributions, cannot exceed 50% of adjusted gross income for the carryover year unless the 100% limit for qualified conservation contributions by a qualified farmer or rancher applies.

14.19 Election To Reduce Fair Market Value by Appreciation

Although the 30% ceiling generally applies to long-term intangible property (such as securities) and real estate contributed to 50% limit organizations (14.17), you may elect the 50% ceiling, provided you reduce the fair market value of the property by 100% of the appreciation on all such donations during the year. The reduction also applies to donations of tangible personal property related in use to the organization’s charitable function. In most cases, this election should be made only where the amount of appreciation is negligible. Where there is substantial appreciation, the increase in the deduction may not make up or exceed the required 100% reduction, which allows you to claim a deduction only for your cost basis in the property. If the election is made in a year in which there are carryovers of capital gain property subject to the 30% ceiling, the carryovers are subject to reduction; see IRS Publication 526.

The election of the 50% ceiling is made by attaching a statement to your original return or amended return filed by the original due date. Even where no formal electing statement is made, claiming a deduction without the appreciation in order to come within the 50% ceiling is treated as an election. A formal or “informal” election is not revocable unless a material mistake is shown. A revocation based on a reconsideration of tax consequences is not considered sufficient grounds.