739 / What is the maximum annual limit on the income tax deduction allowable for charitable contributions?
Editor's Note: The OBBB created a new charitable deduction for taxpayers who do not itemize deductions. Taxpayers who do not itemize deductions can claim an above-the-line deduction charitable contributions of up to $1,000 ($2,000 for joint returns). Taxpayers who do itemize will only be entitled to deduct contributions to the extent they exceed 0.5% of the taxpayer's AGI (that disallowed portion may be carried forward if the taxpayer has other charitable contribution carryforwards for the tax year). For corporations, the deduction is allowed only to the extent that it exceeds 1.0% of the corporation's taxable income.
Planning Point: A little-discussed provision in the OBBBA created a new IRC Section 25F tax credit for individuals who make contributions to eligible scholarship granting organizations (SGOs). The maximum credit is $1,700 per year. It's up to each state to identify qualifying SGOs and state-level participation is optional. Qualifying SGOs fund scholarships for eligible K-12 students, meaning students who (1) are eligible to enroll in public elementary or secondary schools and (2) are members of households with income that does not exceed 300% of the median gross income for the area. The Section 25F credit is reduced by any state-level credit claimed for the same contribution. Taxpayers who take advantage of the Section 25F tax credit cannot also take the federal charitable deduction for the same contribution. Unused credits are permitted to be carried forward for up to five years. The program begins with respect to contributions made on or after January 1, 2027.
An individual who itemizes may take a deduction for certain contributions "to" or "for the use of" charitable organizations. The amount that may be deducted by an individual in any one year is subject to the income percentage limitations as explained in Q 740.The value that may be taken into account for various gifts of property depends on the type of property and the type of charity to which it is contributed. These rules are explained in Q 741 to Q 743.
For an explanation of the deduction for charitable gifts of life insurance, see Q 120.
In the case of a gift of S corporation stock, special rules (similar to those relating to the treatment of unrealized receivables and inventory items under IRC Section 751) apply in determining whether gain on such stock is long-term capital gain for purposes of determining the amount of a charitable contribution.1
A contribution of a partial interest in property is deductible only if the donee receives an undivided portion of the donor's entire interest in the property. Such a contribution was upheld even where the donee did not take possession of the property during the tax year.2 Generally, a deduction is denied for the mere use of property or for any interest which is less than the donor's entire interest in the property, unless the deduction would have been allowable if the transfer had been in trust.
1. IRC § 170(e)(1).
2. Winokur v. Commissioner, 90 TC 733 (1988), acq. 1989-1 CB 1.