Can I deduct charitable contributions?

Charitable contributions are subject to a variety of restrictions. These depend on the nature of the donee, the form of the contribution, and the amount a particular person can deduct. You should consult your tax advisor before making a charitable contribution if the amount of the deduction is of concern. Following is a broad outline of some of the more commonly applicable rules.

Basically, contributions to "public" charities such as religious organizations, educational institutions, governmental agencies, and publicly-supported organizations (such as the Red Cross, American Heart Association, American Cancer Society, United Way, etc.) are treated most favorably. Contributions to them are deductible to the extent of 50% of the donor’s adjusted gross income. Under the 2017 Tax Cuts and Jobs Act the 50% limit is increased to 60% of the donor's income, starting 2018.  

Deductions for other contributions (i.e., to so-called "private foundations") are limited to: (a) 30% of the donor’s adjusted gross income, or (b) the excess of 50% over contributions to the public charities. All charitable contributions must be to United States organizations, i.e., not to foreign charities.

There is an exception to the above rules. If property which, if sold, would result in capital gain (like shares of stock or most real property) is contributed to a public charity, the limitation on deductibility is reduced to 30%. Any amount not deductible because of this limitation can be carried forward for 5 years. Contributions of capital gain property to private foundations are deductible only to the extent of 20% of the donor’s adjusted gross income with the same 5-year carryover.

Finally, contributions of property where gain on the sale would not be long-term capital gain are reduced by the amount of such gain. Contributions of tangible personal property, the use of which is unrelated to the exempt purpose or function of the charity (e.g., contributing a boat to the American Cancer Society) or to a private foundation, are reduced by the amount of long-term capital gain that would have been realized upon sale. In essence, contributions of this type of property are deductible only to the extent of the taxpayer’s basis in the property.

This does not purport to be a complete discussion of the complex rules on deduction of charitable contributions and individuals should consult their tax advisers for a detailed discussion.