Jan
10
2014

Review of Income Tax Deduction Rules for Charitable Gifts

zuckerbergThe Chronicle of Philanthropy recently released its list of the Top 10 biggest charitable gifts of 2013 (which is really the Top 15, since 5 gifts tied at 10th place), and do they make me wish I qualified as a charity!

Topping the list at Number 1 were Mark Zuckerberg of Facebook, and his wife, Priscilla Chan, who gifted $992.2 million of Facebook shares to the Silicon Valley Community Foundation. Number 2 on the list were Nike Chairman Phil Knight and his wife, Penelope Knight, who made a $500 million pledge to the Oregon Health and Science University Foundation.

The list continues:

3. Michael Bloomberg: $350 million pledge to Johns Hopkins University
4. Charles B. Johnson: $250 million pledge to Yale University
5. Stephen Ross: $200 million pledge to University of Michigan
6. Muriel Block: $160 million bequest to Yeshiva University
7. John Arrillaga: $151 million pledge to Stanford University
8. Irwin and Joan Jacobs: $133 million pledge to Cornell NYC Tech
9. Charles Munger: $110 million pledge to University of Michigan

And tying for the number 10 spot,

David Koch: $100 million pledge to New York-Presbyterian Hospital
Frank McCourt: $100 million pledge to Georgetown University
Ronald Perelman: $100 million pledge to Columbia Business School
T. Denny Sanford: $100 million pledge to University of California at San Diego
Stephen Schwarzman: $100 million pledge to Tsinghua University in Beijing
Deborah Joy Simon: $100 million pledge to Mercersburg Academy

While the rest of us may not have the ability to make charitable donations of this magnitude (or maybe you’re the lucky reader who does!), we thought this might be a good time to review some of the basic income tax deductions available for gifts to charities.

Section 170 of the Internal Revenue Code (the “Code”) governs income tax deductions for charitable contributions. In the case of an individual making a cash gift to a Section 501(c)(3) organization classified as a “public charity” (such as churches, schools, hospitals, and governmental units), the gift is deductible for federal income tax purposes so long as the aggregate gifts do not exceed fifty percent (50%) of the taxpayer’s adjusted gross income (“AGI”) for the taxable year.

In the case of a contribution of capital gain property to a public charity, a taxpayer can only deduct such contributions up to thirty percent (30%) of the taxpayer’s AGI for the taxable year. The amount of capital gain property contributed is taken into account after all other charitable contributions to public charities. Therefore, if the taxpayer contributes 30% of his or her AGI in non-capital gain assets and 30% of his or her AGI in capital gain assets, the non-capital gain assets will be applied first, then 20% of the capital gain property will be allowed, with the remaining 10% exceeding the taxpayer’s total 50% limit. Any excess contributions will be treated as a contribution in each of the five succeeding taxable years.

If a taxpayer contributes cash to a Section 501(c)(3) organization that is not classified as a public charity, such as to a private non-operating foundation, then the deductions for such contributions may not exceed the lesser of thirty percent (30%) of the taxpayer’s AGI or the excess of fifty percent (50%) of the taxpayer’s AGI for the taxable year over the amount of contributions of cash made to public charities.

If a taxpayer contributes capital gain property to a Section 501(c)(3) organization that is not classified as a public charity, then the amount of the contributions allowable for deduction purposes shall not exceed the lesser of twenty percent (20%) of the taxpayer’s AGI for the taxable year, or “the excess of thirty percent (30%) of the taxpayer’s AGI for the taxable year over the amount of the contributions of capital gain property” to public charities. Contributions of capital gain property to which this twenty percent (20%) limitation apply shall be taken into account after all other charitable contributions. Any excess contributions will be treated as a charitable contribution of capital gain property in each of the five succeeding taxable years.

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