In-Depth Articles
Charitable Giving in a Turbulent Economy
In today’s economy many people are being forced to prioritize their cash flow and minimize their expenditures. For some, this may mean reducing their charitable giving. With fewer funds to spare, making non-cash property donations to qualified charities may be a viable alternative to cash giving. A non-cash contribution provides an opportunity to support your favorite charities despite cash flow constraints.
In addition to philanthropic fulfillment, your non-cash gifts are generally tax deductible, subject to certain limitations, and may create some significant tax savings. In the event that your deduction is limited, any unused portion may be carried forward to offset income as far as five years into the future. Besides the immediate income tax deduction, non-cash contributions may provide an opportunity to avoid unnecessary capital gains taxes and reduce potential future estate taxes. Below are some examples of property to consider donating as part of your philanthropic plan and how these contributions may equate to additional tax savings.
Motor Vehicles, Boats, & Airplanes
The amount of the deduction for qualified vehicles with a value exceeding $500 depends on how the charity uses the vehicle. Generally, if the charity sells the donated vehicle, your charitable deduction will be limited to the gross proceeds of the sale. If the charity intends to and actually does significantly use the vehicle to further its charitable activity, the deduction will be the fair market value at the time of donation. No deduction will be allowed without a written acknowledgment from the donee charity.
Real Estate
The deduction for property held for investment for more than 12 months is the fair market value of the property at the time of donation, subject to an income limitation. If you contribute appreciated real estate you can deduct the full fair market value of the property without having to be liable for any capital gains taxes. The contribution deduction allowed for property that has decreased in value is also the fair market value at the time of contribution; however, the loss is not deductible. In some circumstances it may be more advantageous to sell the property, recognize the loss (assuming it is deductible), and then donate the proceeds to the charity.
Stocks
As with real estate, publicly traded stocks and bonds held for more than one year are capital gain property, deductible at their fair market value subject to the percentage of income limitation. In the case of securities gifted to a family funded private foundation, the deduction is subject to a stricter limitation as well as other restrictions depending on the type of security being transferred.
Art and Other Collectibles
The deduction for tangible personal property is subject to the “related use” rule limits. The deductible amount will be fair market value only if the charity uses the property in its exempt function. If the organization immediately sells it or uses it for a purpose that is not related to its exempt purpose, you will only be eligible for a deduction to the extent of your basis (usually your cost). This is an important factor to consider when donating appreciated art and other collectibles. Depending on the intent of the charity it may be advisable to sell the item and donate the cash to protect your tax deduction.
Non-cash donations in excess of $5,000 require a qualified appraisal with the exception of publicly traded stocks and all charitable contributions require substantiation. The recordkeeping and filing requirements vary based on whether the contribution is made in cash or property, and the amount of cash or value of the property contributed.
There are several factors to consider in determining the deductibility of a non-cash contribution; therefore we encourage you to discuss any concerns you may have with your tax advisor prior to making a donation. We at Hughes, Snell & Co. P.A. are happy to answer any of your questions regarding charitable deductions and documentation requirements. Keep on giving!
To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used for the purpose of avoiding penalties assessed under the Internal Revenue Code.
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