Planning for charitable contribution limitations.

• Author: Ellentuck, Albert B.

CHARITABLE CONTRIBUTIONS ARE DEDUCTIBLE as itemized deductions. Thus, a taxpayer's total itemized deductions must be greater than the standard deduction to generate tax savings from a gift to charity. The amount of charitable contributions an individual can deduct in any one tax year is limited depending on the types of organizations to which the contributions were made, the kinds of property contributed, and the amount or value of the donated property. Generally, five percentages-of-AGI (adjusted gross income) limitations can apply: two 5.0% limitations, two 30% limitations, and the 20% limitation (Sec. 170(b)).

The 50% Limitations

The first 5.0% limitation provides that aggregate deductible contributions (including those subject to the separate 20% or 30% limitations) cannot exceed 50% of AGI. Excess contributions are carried over to the succeeding five tax years and are used on a first-in, first-out basis (Sec. 170(d)). However, for any tax year, all current-year contributions are deducted first.

The second 50% limitation refers to gifts (other than capital gain property) to certain types of charitable organizations (50% charities) that are considered first in computing the overall 50% limit. (The ordering process of when contributions are considered applies when a taxpayer also has contributions to non-50% charities.) The most common 50% charities include churches, schools, hospitals, governmental entities, private operating foundations, and other nonprofit agencies organized for charitable, religious, educational, scientific, or literary purposes (Sec. 170(b)(1)(A)). The IRS Exempt Organizations Select Check tool (available at tinyurl.com/a72f74x) categorizes qualified organizations as-50% or non-50% organizations. (The information contained in the former Publication 78, Cumulative List of Organizations Described in Section 170(c) of the Internal Revenue Code, has been incorporated into the tool.)

The 30% Limitations

Two 30% limitations can apply. The first limitation (the regular 30% limitation) applies to gifts of property (including cash) other than capital gain property to charities that do not qualify as 50% charities. Common charities in this group include veterans organizations, domestic fraternal societies, nonprofit cemeteries, and certain private foundations (Sec. 170(b)(1)(B)). it also applies to gifts for the use of any charitable organization (e.g., income interest in trust property or amounts spent for a student living in...