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In general, your total charitable deductions are limited to no more than 60% of your adjusted gross income (AGI). However, only donations to certain organizations as defined by the IRS qualify for the highest limit. These organizations include, but are not limited to, churches, educational institutions, and hospitals. Only certain qualified conservation contributions are eligible for a higher limit.
The amount you can deduct for charitable contributions generally is limited to no more than 60% of your adjusted gross income (AGI). However, your deduction may be further limited to 50%, 30%, or 20% of your adjusted gross income, depending on the type of property you give and the type of organization you give it to.
Among the categories to which this lower amount applies (50%, 30%, or 20%) are veterans’ organizations, fraternal societies, nonprofit cemeteries, and certain private foundations (as opposed to public charities).
Only Partial Credit
For certain donations, you must determine the deduction you are entitled to claim. These include donations for which you receive at least a partial benefit.
For example, if you buy an umbrella “for a cause,” the entire price of the umbrella is not deductible—only whatever you contributed in excess of the value of the umbrella. If you donated $50 for the umbrella, and the stated value of the umbrella is $20, the deductible amount of the gift is only $30 ($50 gift – the umbrella’s $20 value = $30 charitable contribution).
This is also true for events like charity dinners and golf outings, where the fair market value of the meal and the round of golf must be subtracted from the cost of the event to determine the amount of your donation.
Market Value for Donated Goods
A common form of a charitable donation for many people is to donate clothes, household items, and furniture to charitable organizations, such as Goodwill, and the Salvation Army. Although this is a great way to get rid of clutter in your home while helping others, you must pay attention to the rules for these types of noncash donations.
According to the Internal Revenue Service (IRS), a taxpayer can deduct the fair market value of clothing, household goods, used furniture, shoes, books, etc. Fair market value is the price a willing buyer would pay for them. Value usually depends on the condition of the item, and used clothing and household items must be in usable good condition. Additional regulations apply to vehicle donations. You cannot claim the new value for a noncash donation but must use the item’s fair market value.
Although you should keep track of your tax-deductible donations, you will need additional documentation in these circumstances:
Cash or property donations worth more than $250: The IRS requires you to get a written letter of acknowledgment from the charity. The letter must include the amount of cash you donated, whether you received anything from the charity in exchange for your donation, and an estimate of the value of those goods and services.
If you deduct at least $500 worth of noncash donations: Fill out Form 8283 if you’ll deduct at least $500 in donated items. Additionally, you must attach an appraisal of your items to the form if they’re worth more than $5,000 in total.