Itemized Deductions from A to Z, Part 10: Charitable Limitations and Carryovers

This is part ten in our series on Itemized Deductions. To read the rest of the series, click here. For additional information regarding 2014 tax planning, you can download our 2014 Tax Planning Guide from the Resources tab on our website.

Your adjusted gross income (last line on page 1 of Form 1040) serves as the gatekeeper for charitable contributions. For example, cash contributions made to a school, church or public charity are generally limited to 50% of your AGI. Contributions of capital gain property held long term (publicly traded stock) are deductible up to 30% of adjusted gross income. This lower 30% limit would also apply to art donated to a charity and used for their exempt purpose—for example, if you donate a piece of artwork to an art museum.

A simple example would be a taxpayer with $100,000 of income who wants to make the maximum deductible cash contribution to a charity. The limit would be $50,000 with anything above that amount carried forward. If the deduction is appreciated stock held long term, the maximum deduction would be $30,000.

If the charitable organization does not qualify for the 50% AGI limit, other limits might apply. Gifts made to non 50% organizations are limited to 30% or 20% of AGI.

If you have contributions that exceed the above limits, you may carry forward for five (5) years or until used (whichever comes first). Large gifts over successive years could put you at risk for losing the deduction, so just be aware of the limits and plan accordingly.

Planning Tip
When making a large gift to a charity, be sure you know the limitations imposed based on the type of gift and the charity—it’s not all treated the same. A tax deduction is never the reason to be charitable, but you might as well make the best use of the deduction.

Next time, we’ll look at casualty and theft losses.