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When contemplating making a significant gift, the charitably inclined are well advised to exercise some foresight. Similar gifts made in different ways will yield remarkably different results.The treatment of your gift for federal tax purposes will vary depending on the type of asset donated, the type of charitable organization receiving the gift, and your individual circumstances and overall tax status.
Asset Classification Gifts funded with different types of assets are subject to different restrictions on deductibility.
The Internal Revenue Code (IRC) generally classifies different types of property according to a four-tier system, consisting of: 1) ordinary income property; 2) short-term capital gain property; 3) long-term capital gain property; and 4) tax-free property. Property is also classified as either being intangible property (securities, bonds, mutual funds, etc.), or tangible personal property (artwork, collectibles, jewelry, etc.).
Types of Charities There are also deductibility limitations imposed on donations depending on the structure of the recipient charities, which fall into two general categories:
 | Public Charities. So-called public charities include organizations such as the Red Cross, most religious organizations, schools, and hospitals. This category also includes operating private foundations that actually directly engage in charitable activities (as opposed to simply making grants), and "pass-through" foundations that distribute their gifts and income promptly.
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| Private Foundations. This category is far more restricted because of concerns relating to the potential for abuse by donors or foundation officials.
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Valuation and Eligibility Donors must categorize their donations in accordance with the above classifications in order to determine the valuation of their gift for the purpose of claiming a charitable deduction. Consider the following:
| Gifts of cash (including by check) are simply equal to the amount of the gift.
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| Gifts of tangible personal property that can be directly used to advance the recipient charity's tax-exempt purpose, or gifts of long-term appreciated intangible property are eligible for claiming a deduction based upon the fair market value (FMV) of the donated asset. A change in 2006 now requires however that if the organization sells the property within three years after the donation, the donor's deduction is reduced. In addition, donated clothing must be in "good used condition or better."
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| Gifts of tangible personal property not for exempt use, short-term appreciated intangible property, or ordinary income property are eligible for claiming a deduction based on the original cost (less depreciation) or fair market value of the donated asset, whichever is less.
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| To claim a total non-cash contribution of $500 or more, the taxpayer must complete and attach a specific IRS form (Form 8283) to his or her tax return.
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There are also additional limits on gifts of real estate, which may be reduced by any "depreciation" deductions taken over the years. In this regard, property placed in service before January 1, 1987—in some cases—could yield a higher deduction than property placed in service after that date. You are simply not eligible to claim a deduction at all for contributing personal services to a charity or letting a charity use your property rent-free.Making gifts of stock to a private foundation entails additional hazards, with different standards applying to gifts based on the incorporation status of the company. Gifts of publicly-traded securities are the least restricted with fair market valuation, while an underlying structure other than C corporation status may limit your deduction to only your original cost. Gifts of stock in a privately-held company to a private foundation can, in fact, cause the foundation itself to owe taxes when it sells the stock.Any single contribution exceeding $5,000 (except one funded with cash or publicly-traded stock) requires a qualified appraisal within 60 days of the date of gift. All gifts of $250 or more require written acknowledgment from the recipient charity in order to claim a deduction, though it is undoubtedly prudent to obtain a receipt for gifts of any size. Additionally, an important change was made by the Pension Protection Act of 2006. Monetary gifts, no matter how large or small, are no longer deductible unless the donor has a cancelled check, some other bank record, or a written statement from the charity giving the particulars of the notation. Using actual cash is therefore not as attractive as it once was.
Please note that for 2006 and 2007, individuals who have reached or passed age 70 1/2 can have a distribution of up to $100,000 made (of any otherwise taxable amount) from their IRA to a charity, and this will not be included in gross income. No deduction is allowed, but the amount distributed is counted in determining whether the required minimum distribution rules have been met for the year.
Income Limitations The final factor affecting your ability to claim a charitable deduction pertains to limitations associated with the size of your adjusted gross income (AGI). Your deduction for gifts of cash to a public charity may not exceed 50% of AGI in any one year, while your deduction for cash gifts to a private foundation may not exceed 30% of AGI.For gifts of both long- and short-term appreciated property, your deduction is limited to 30% of AGI for gifts to public charities and 20% of AGI for gifts to private foundations. The limitations on both cash and appreciated property work in tandem, capping total charitable deductions for any one year at 50% of AGI. Deductible amounts above these limits may be carried forward for up to five additional, consecutive tax years. Higher income donors must also be wary of restrictions on total itemized deductions, which are gradually phased out above certain levels of AGI.
Seek Counsel Please note that specific types of property such as "fractional interests," taxidermy property, and conservation easements to name a few, are subject to additional specialized rules. With so many guidelines to consider, the only conclusion one can draw with certainty is: If you intend to make a charitable gift that you consider to be significant, the assistance and counsel of a qualified tax professional is vital to successfully navigating the murky waters of charitable tax law.
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