Charitable Contributions

You can deduct, as an itemized deduction, contributions made to an organization that qualifies to receive deductible contributions. Most organizations, other than churches and governments must apply to the IRS to be eligible organizations. If you have a doubt you can ask the organization, or you can refer to IRS Publication 78, which lists eligible organizations. Contributions may be in cash or property.

Cash contributions greater than $250 must be evidenced by a receipt from the donee organization. This receipt must state if any items of value was received in exchange for the donation. A cancelled check is NOT acceptable documentation for a charitable contribution.

Contributions to an organization in which you specify a particular individual to receive the funds are not deductible. For example, if you give $50 to your local church and direct them to give the funds to Mr. X, that is not deductible. If, however, the church has a benevolent ministry and is soliciting funds to help Mr. X, that would be deductible, as you did not specify the use of the funds, but merely contributed to an existing church fund.

You cannot deduct contributions to:

• Civic leagues, social and sports clubs, labor unions, or chambers of commerce.
• Foreign organizations
• Groups run for personal profit
• Groups whose purpose is to lobby for law changes
• Homeowners' associations
• Individuals
• Political groups or candidates for political office.

Also not deductible are:

• Non-charitable payments go federal, state, or local governments
• Cost of raffle, bingo, or lottery tickets
• Dues, fees or bills paid to country clubs, lodges, fraternal orders
• Tuition
• Value of your time or services
• Value of blood given to a blood bank.

Benefit Received

If you receive a benefit as a result of making a contribution to a qualified organization, you only deduct the contribution in excess of the value of that benefit. For example, if you contribute $50 to a charitable organization and receive a book valued at $10, your charitable contribution is $40.

Expenses of a Student Living with You

You can deduct up to $50 a month for the expenses of a student living with you if:

• The student lives in your home under a written agreement between you and a qualified organization as a part of a program to provide educational opportunities to the student, and the student,
• Is not your relative or dependent, and
• Is a full time student in the 12th or lower grade at a school in the United States.

Out-of-Pocket Expenses

If you render services to a qualified organization, you may not deduct the value of your time or services. However, you may deduct any out-of-pocket expense incurred in the rendering of these services. These expenses must not be reimbursed, must be directly related to the services rendered, incurred only because of the service rendered, and not be personal expenses. These expenses can include mileage at 14 cents a mile and meals when away from home overnight while performing the services.

Contributions of Property

Depending on the type of property contributed, the donation is subject to special treatment. In most cases you can deduct the fair market value of the property donated. Often, people will donate items such as clothing, used appliances, or other household goods. These items are deductible at fair market values. A software program such as "Deduction Pro" or "It's Deductible" will help you determine the fair market value of such items. In addition, the sale prices of comparable items on eBay may be used as a guideline. Prices in consignment stores or thrift shops may also be used.

If the property you donate has decreased in value, you can generally deduct the fair market value. If it has increased in value you must determine if it is ordinary income property or capital gain property.

Ordinary income property is property that, if sold, would result in ordinary income for you. Inventory, works of art created by the donor, and capital assets held less than one year are some examples. Generally speaking you can only deduct your cost (basis) of donated ordinary income property.

Capital gain property is property that, if sold, would result in capital gain treatment for you. This includes capital assets such as stocks, real estate, and collectibles. It must have been owned for more than a year. Generally, you can deduct the fair market value of donated capital gain property.

For example, assume you own 100 shares of stock in Company A and you purchased that stock two years ago for $1,000. The value of the stock is now $5,000 and you wish to make a donation to your church building fund. If you donate the stock directly to the church, you can receive a $5,000 deduction and will not have to pay any tax on the gain in the value of the stock.

You should obtain a receipt from the organization for the donation. However, it is not the responsibility of the organization to place a value on the donation. All they should do is give a receipt acknowledging the donation.

Special Rules for Cars, Boats, and Airplanes

If you donate a car, boat, or airplane valued at more than $500 you can deduct the smaller of its value on the date of the contribution or the gross proceeds realized by the organization when they sell the item.

If the organization does not sell the car, boat, or airplane because they either use it in the organization or give it to a needy individual, you can generally deduct the fair market value of the item.

In donating such items, the organization receiving the car, boat, or airplane must give you a 1098-C within 30 days of your donation. You cannot take a deduction unless this form is attached to your tax return. This form will indicate the proceeds from selling the item or state that it was not sold.

Requirements for Larger Noncash Donations

If you donate more than $500 in property in a given year, you must complete Form 8283 listing the property donated, the date of the donation, and the organization to which it was given.

If you donate items (other than publicly traded stocks and bonds) valued at $5,000 or more, you must have the property appraised and the Form 8283 must be signed by the appraiser.

Limits on Contributions

You are limited to a charitable contribution of 50% of your adjusted gross income. Any amounts that cannot be deducted in a given year may be carried forward for up to five years and deducted in those years.

There is a second limit of 30% of your adjusted gross income for gifts to organizations such as veterans' organizations, fraternal societies, nonprofit cemeteries and certain private non-operating foundations. If in doubt you should ask the charity if they are a 50% or a 30% organization. Another 30% limitation applies amounts you spend on behalf of a student living with you. Finally, there is a 30% limitation on capital gain property donated to a 50% limit organization.

There is a 20% limit on capital gain property donated to non-50% organizations.