Charitable donations are a great way to contribute to organizations you care about and get an extra tax break. But the Internal Revenue Service limits the amount of charitable contributions you can deduct. Depending on what you donate and what kind of organization it goes to, your deduction may be limited to 50 percent, 30 percent or 20 percent of your adjusted gross income, or AGI.
As a general rule, the IRS allows you to deduct contributions to charitable organizations up to 50 percent of your AGI. Any excess donations you make can be carried forward to the next tax year. For example, say your AGI is $50,000 and you made $27,000 in donations. You can deduct $25,000 this year and carry the $2,000 excess over to deduct next year.
The 50 percent limitation applies to all public charities, private operating foundations and certain private foundations. Unlike other private foundations, a private operating foundation is one that devotes most of its resources to conducting charitable activities. If you donate to a nonqualifying private foundation , veteran organization, fraternity or cemetery, you can only deduct the contribution up to 30 percent of your AGI.
Capital Gain Property Contribution Limits
Additional IRS contribution limits are imposed on certain property that has increased in value. If you donate capital property -- like stocks, jewelry, cars, furniture, art or a stamp collection -- that has appreciated, you can only deduct up to 30 percent of your AGI even when you give to an organization that's usually limited to 50 percent. If you give capital gain property to an organization that's usually limited to 30 percent, you can only deduct the capital gain property up to 20 percent of your AGI.
The IRS requires more detailed information about large donations. If your total noncash donations exceed $500, you must complete Form 8283 and note whom you gave the donation to, when you made it, when you acquired the property you donated, what the property cost you and what the fair market value of the property is. If your noncash donation exceeds $5,000, you must also include a qualified appraisal that documents the value of the donated property.
IRS Red Flags
Certain other donations can raise a red flag with the IRS. According to tax attorney Robert Wood, you could get in trouble with the IRS if the donation is made to an organization that doesn't qualify as a charity. You also can't deduct the value of your time, and your deduction is limited if you receive something in return for your donation, like a charity dinner or prize.
Use the IRS charity search tool to ensure the organization you donate to qualifies for a tax deduction.