The deductibility of most charitable gifts hasn’t changed since
passage of the Tax Cuts and Jobs Act, but some recordkeeping requirements have.
Helping your donors who itemize deductions understand the rules and benefits of
their gifts can strengthen your not-for-profit’s ties with them — and may help
Generally, donors can deduct total contributions of money or
property up to 60% of their adjusted gross income. The amount of the allowable
deduction varies, but cash donations are 100% deductible if the donor maintains
proof (such as bank records or thank-you letters from your nonprofit).
Donations of ordinary-income property usually are limited to the
donor’s tax basis in the property (usually the purchase price). Specifically,
donors can deduct the property’s fair market value (FMV) less the amount that
would be ordinary income or short-term capital gains if they sold the property
at FMV. Property is ordinary-income property when donors would recognize
ordinary income or short-term capital gains if they sold it at FMV on the date
When FMV applies
Donors of capital gains property usually can deduct the
property’s FMV. Property is considered capital gains property if the donor
would have recognized long-term capital gains had he or she sold it at FMV on
the donation date. This includes capital assets held more than one year. But in
some circumstances, such as when the donation is intellectual property, only
the donor’s tax basis of the property may be deducted.
If your nonprofit uses tangible donated property for its
tax-exempt purpose — for example, a museum displays a donated painting — the
donor can deduct its fair market value. But if the property is put to an
unrelated use (a hospital sells the donated painting) the deduction is limited
to the donor’s basis in the property.
For donations of property, the substantiation requirements
depend on the deductible value. If someone donates an item worth:
In general, only donations of the full ownership interest in
property are deductible. The right to use property is considered a contribution
of less than the donor’s entire interest in the property. But there are some
situations in which a donor can receive a deduction for a partial-interest
donation, such as with a qualified conservation contribution.
Donors can’t claim a deduction for the donation of their
professional services. However, related out-of-pocket costs, such as supplies
and miles driven, are deductible as charitable contributions.
Look out for their interests
Take time to make sure your donors understand the tax
implications of their gifts. It can help them avoid unpleasant surprises down
the road — and keep them loyal to your nonprofit. Contact us with questions.