There are lots of things to consider when giving a donation to a charity. The first step is to determine if you're even going to get a tax benefit for your charitable gift. The charitable deduction is only available as a below-the-line deduction.
That is a change in the past few years. So, what is a below-the-line deduction? And how do you ensure that your large charitable contributions of cash or checks, household goods, cars, or appreciated property are properly deducted?
Retirement Daily's Robert Powell caught up with Jeffrey Levine, CPA and tax pro from Buckingham Strategic Wealth Partners gives a step-by-step guide on everything that you need to know about how to claim large charitable contributions as tax deductions.
Robert Powell: If you make a large charitable contribution, how can you be sure that you'll be able to claim those donations as deductions? Here to talk with me about that is Jeffrey Levine from Buckingham. Jeffrey, welcome.
Jeffrey Levine: Good to be with you, Bob. And yeah, lots of things here to think about when giving money to charity. The first is figuring out whether or not you're going to get a tax benefit in the first place. It's worth noting that the charitable deduction is only available as a below-the-line deduction. Now, that's a change from the last few years. For a few years, we had a limited ability to deduct charitable contributions that were made in cash as an above-the-line deduction effectively. Well, that's no longer the case. And we're back to the regular rules, which is an itemized deduction. So if you take the standard deduction, doesn't matter, you don't get a benefit anyway.
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But assuming you are eligible to deduct, which certainly would be more likely if you're making a large contribution, particularly of property, then how do we make sure that you get that deduction? Well, a few things. First off, keeping good records is an absolute must. Keep records of the property you transfer to the charity. If it's stock, you want to show the distribution going to the charity, and have a copy of that document. Maybe it's land. You want to have a copy of the deed showing the transfer, etc. That's one item.
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The second thing is maintaining those records and filing the appropriate form. So if it's a very small donation of property, say a bag of used clothes, for instance, you're not going to have a special filing that you need to do. However, there are special requirements when you file for larger non-cash contributions. So once you hit kind of like the $500 mark, you're going to need to file a separate form. And in addition to that, as you increase the value of the certain property that is donated, you actually may need to start going out and getting qualified appraisals on that, that need to be done at the time. There's some case precedent on file where even if you can kind of reconstruct what that was after the fact. If you don't have that contemporaneous estimate, that qualified appraisal of the property, then the IRS may very well end up denying that deduction. And if we're talking about a large piece of property, that can be quite an expensive mistake.
Robert Powell: So in terms of the donation itself, is there a limitation on how much you can deduct? Is it 100% or 50% or some other number?
Jeffrey Levine: Yeah, so cash contributions generally are subject to a higher deductibility limit. So typically that's 50%. However, right now, current rules allow you to deduct up to 60% of your cash contributions. I should say you're able to deduct cash contributions to a public charity equal to as much as 60% of your AGI. With property, it is a more limited deduction. Typically, if you're giving appreciated property that's held for more than a year to a public charity, then generally that's going to be limited to no more than 30% of your AGI. So if you had $100,000 of AGI, you could deduct up to $30,000 of in-kind or property gifts to a public charity in that year. However, if you have excess, that amount can be carried forward for up to five years and would be used sequentially in the order. So on a first in, first out basis.
Robert Powell: Right, and then as with medical expenses, is there a threshold or not?
Jeffrey Levine: The threshold here is simply a matter of whether are you able to take itemized deductions. So we're going to take the charitable contribution deduction you have. We're going to add it to your mortgage interest deduction, your health expenses, etc., and then if the total of those is large enough that you can deduct your dollars because it's greater than your standard deduction, well, then you'll get a benefit.
Editor's Note: The content was reviewed for tax accuracy by a TurboTax CPA expert.
Zach Faulds contributed to the writing of this article and produced the video and/or the graphics associated with it.