Guidelines for Tax Deductible Contributions to a Scholarship Fund

The Internal Revenue Service offers a charitable contribution deduction to encourage taxpayer support of non-profit institutions. You can take the deduction for money or value of property you donate to qualified organizations during the tax year. Educational funds and institutions are organizations offering donors assurance of tax-deductible donations. However, if the fund operates for other profit-seeking purposes, the deduction may not be available to you.


Monetary Donations

A monetary donation to a scholarship fund includes gifts made by credit card, cash, check or bank transfer. All monetary gift donors must retain proof, such as a receipt from the fund, canceled check, bank transfer confirmation or credit card statement. If any single contribution is for $250 or more, you must also retain an acknowledgment from the fund that states the date and amount of contribution, and confirms that you do not receive a benefit of any value in exchange for the donation.


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Property Donations

The donation of property to the fund requires that you assess its fair market value. Fair market value is the price you can receive for the property if you sell it on the open market. The IRS requires you to reference any authoritative price guide appropriate for the type of property you donate, such as a Kelley Blue Book for valuing a used car. Each separate donation with a value of less than $250 requires you to retain a receipt from the fund that describes the property and the date of donation. If the value is between $250 and $500, the receipt must also include the property's value and list any benefit you receive in exchange. Donations with a value that exceeds $500 have additional record-keeping requirements such as the property's tax basis, how you acquired the property and qualified appraisals of property value.



Receiving a benefit from the scholarship fund does not prohibit you from taking a tax deduction. However, you must reduce the value of a deductible donation by the value of the benefit you receive. For example, a deduction for a $5,000 car you donate to the fund reduces to $4,750 if the fund gives you a $250 gift certificate in appreciation of the donation. If the benefit you receive does not have a specific monetary value, you must assess its fair market value to determine the appropriate reduction.



The IRS categorizes certain scholarship funds as "50-percent-limit" organizations. A donation to these organizations allows you to take an annual deduction amount equal to 50 percent of adjusted gross income. For donations to funds that do not qualify, you can take a maximum deduction equal to 30 percent of adjusted gross income. The IRS publishes a cumulative list of groups that qualify as 50-percent-limit organizations.



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