Question

How are charitable contributions reported for individuals? What are the reporting requirement for contributions of property?

Answer 1

REPORTING OF CHARITABLE CONTRIBUTIONS:

• The amount of charitable contributions an individual taxpayer can deduct in any tax year is limited depending on the types of organizations to which the contributions were made, the kinds of property contributed and the value of the donated property. The adjusted gross income percentage limitations involved in calculating taxpayers’ allowable charitable contribution deduction are: 50 percent, 30 percent and 20 percent. There is also a 60 percent limitation for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026.
• The 50 percent limitation applies to all charitable contributions made in the aggregate during the year (including those subject to the separate 20 percent or 30 percent limitations, discussed below), meaning that a taxpayer’s total charitable contribution deduction cannot exceed 50 percent of the taxpayer’s AGI in any one year. The 50 percent limitation also applies to donations made to organizations the IRS has designated as “50 percent charities.” The most common 50 percent charities include: churches, schools, hospitals, governmental entities and other nonprofit entities organized for charitable, religious, educational, scientific or literary purposes.
• Donations to qualified organizations that are “non-50 percent charities” are subject to a 30 percent of AGI limitation. Examples of these are: veterans organizations, fraternal societies and nonprofit cemeteries. Deductible amounts spent on behalf of a student living with the taxpayer are also subject to the 30 percent limit.
• The other 30 percent limit applies to contributions of capital gain property to 50 percent charities. It’s important to note that the 30 percent limit applies when the taxpayer deducts the fair market value of capital gain property contributed. If the taxpayer elects to reduce the FMV by the long-term capital gain the taxpayer would have recognized had they sold the capital asset (thus reducing to cost basis), then the contribution would be subject to the 50 percent limitation instead.
• The 20 percent AGI limitation applies to capital gain property contributed to 30 percent charities.
• The AGI limitations for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2016 are applied in the following order:

1. The taxpayer would calculate cash contributions made to public charities and certain private foundations, not to exceed 60 percent of their AGI.
2. The taxpayer would calculate contributions made to 50 percent charities, not to exceed 50 percent of their AGI. Cash contributions taken into account in the first step are not taken into account for purposes of applying the 50 percent limit. However, that limit is reduced by the aggregate cash contributions allowed under the 60 percent limit.
3. Contributions made to non-50 percent charities to the extent of the lesser of: (1) 30 percent of AGI or (2) 50 percent of AGI reduced by all contributions to 50 percent charities and cash contributions allowed under the 60 percent limit.
4. Contributions of capital gain property to 50 percent charities, up to the lesser of: (1) 30 percent of AGI or (2) 50 percent of AGI, less other contributions to 50 percent charities and cash contributions allowed under the 60 percent limit.
5. Contributions of capital gain property to non-50 percent charities, to the extent of the lesser of: (1) 20 percent of AGI or (2) 30 percent of AGI, less contributions subject to the 30 percent limit.

• Carryovers

Charitable contributions that are not deductible in the current year because they exceed the taxpayer’s AGI limitation can be carried forward for 5 years. The ordering rules require the taxpayer to first deduct all current year contributions before using any carryover contributions. If the taxpayer has carryovers from 2 or more prior years, the taxpayer must use the carryover from the earlier year first. A carryover of a contribution to a 50 percent limit organization must be used before contributions in the current year to organizations other than 50 percent limit organizations. The taxpayer should consider any charitable contribution carryovers that are at risk of expiring in a given year before making any charitable contributions in the current year to avoid losing tax benefits from the carryovers

Contributing Property

When contributing property, the taxpayer can generally deduct the FMV of the property as of the date of contribution. If the property has appreciated in value, however, some adjustments may have to be made, depending on whether the property is considered ordinary income property or capital gain property.