8056 / What general rules apply to charitable deductions?

The 2025 OBBB also created a new limitation for individual taxpayers who do itemize deductions. Itemizing taxpayers can only deduct contributions to the extent that their qualified contributions exceed 0.5% of their adjusted gross income. This provision is also effective for tax years beginning after December 31, 2025.4

For corporations, only contributions that exceed 1% of the corporation’s taxable income will be deductible in 2026 and beyond.5

As a general rule, a gift of less than an individual’s entire interest in property is not deductible, but certain exceptions are provided (see Q 8077, Q 8087, and Q 8105).

For a charitable contribution to be deductible, the charity must receive some benefit from the donated property.6 In addition, the donor cannot expect to receive some economic benefit (aside from the tax deduction) from the charity in return for the donation.7 For instance, if a taxpayer contributes substantially appreciated property, and later reacquires it from the charity under a prearrangement, or if the charity sells the appreciated property and uses the proceeds to purchase other property from the taxpayer under a similar arrangement, the taxpayer recognizes gain on the contribution.8 However, where there is no arrangement, and no duty on the part of the charity to return the property to the donor, the taxpayer is entitled to a deduction. In addition, if the charity does return the property, the taxpayer receives a new basis in the property (i.e., the price he paid to reacquire it).9

Generally, if a taxpayer makes a payment or transfers property to or for the use of a Section 170(c) entity, the amount of the taxpayer’s charitable contribution deduction under Section 170(a) is reduced by the amount of any state or local tax credit that the taxpayer receives or expects to receive in consideration for the taxpayer’s payment or transfer. This rule does not apply to any payment or transfer of property if the total amount of the state and local tax credits received or expected to be received by the taxpayer is 15 percent or less of the taxpayer’s payment, or 15 percent or less of the fair market value of the property transferred by the taxpayer.

If a taxpayer makes a payment or transfers property to or for the use of a Section 170(c) charity, and the taxpayer receives or expects to receive state or local tax deductions that do not exceed the amount of the taxpayer’s payment or the fair market value of the property transferred by the taxpayer to the entity, the taxpayer is not required to reduce its charitable contribution deduction under Section 170(a) on account of the state or local tax deductions. If the taxpayer receives or expects to receive a state or local tax deduction that exceeds the amount of the taxpayer’s payment or the fair market value of the property transferred, the taxpayer’s charitable contribution deduction under Section 170(a) is reduced.10

In determining whether a payment that is partly in consideration for goods or services (i.e., a quid pro quo contribution) qualifies as a charitable deduction, the IRS has adopted the 2-part test set forth in United States v. American Bar Endowment.11 In order for a charitable contribution to be deductible, a taxpayer must (1) intend to make a payment in excess of the fair market value of the goods or services received, and (2) actually make a payment in an amount that exceeds the fair market value of the goods or services.12 The deduction amount may not exceed the excess of (1) the amount of any cash paid and the fair market value of the goods or services; over (2) the fair market value of the goods or services provided in return.13

The Tax Court has held that tuition payments paid by taxpayers to religious day schools for the secular and religious education of their children were not deductible as a charitable contribution, including amounts paid to one of the schools for after-school religious education classes.14

Where a company transfers an amount it holds on a taxpayer’s behalf to a charity: (1) the payment received by the company from the Internet vendor is a rebate (resulting from prior purchases from the vendor) and, thus, is not includable in the taxpayer’s gross income; and

(2) the amount transferred is a charitable contribution that is deductible by the taxpayer in the year that the company (acting as the taxpayer’s agent) transfers the taxpayer’s rebate to charity.15

Certain goods or services received in return for a charitable contribution may be disregarded for purposes of determining whether a taxpayer has made a charitable contribution, the amount of any charitable contribution, and whether any goods or services have been provided that must be substantiated or disclosed.16 These items include goods or services that have an insubstantial value under IRS guidelines ($13.90 in 2026 (projected), $13.60 in 2025 and $13.20 in 2024), certain annual membership benefits, and certain admissions to events.17

Prior to 2018, if an otherwise deductible charitable contribution to a university (or other institution of higher learning) directly or indirectly entitled the donor to purchase tickets for athletic events in a stadium of the institution, the contribution was 80 percent deductible, to the extent that the contribution is not a payment for the tickets themselves.18 No such deduction is allowed for tax years beginning after 2017. Prior to 2018, the Service had determined that the portion of the payment made to a state university’s foundation, for which the donor (an S corporation) received the right to purchase tickets for seating in a skybox at athletic events in an athletic stadium of the university, was deductible under IRC Section 170(l). The Service reasoned that the portion of the payment to the foundation for the right to buy the tickets for seating was considered as being paid for the benefit of the university; thus, 80 percent of such portion was deductible. The Service also stated that the remainder of the payment (consisting of
the ticket purchase, the right to use the skybox, the passes to visit the skybox, and the parking privileges) was not deductible.19

The IRS has ruled privately that contributions made to a university for the purpose of constructing a building providing meeting space for campus organizations qualified for a charitable deduction under IRC Section 170. With the exception of the meeting rooms leased to individual sororities, the facilities in the building would be open to all students. Because the facts indicated that the contributions were indeed gifts to the college, and not gifts to the sororities using the college as a conduit, the Service determined that the requirements of Revenue Ruling 60-3720 had been satisfied.21

Charitable split dollar. Responding to perceived abuses, in 1999 Congress passed legislation that denies a charitable deduction for certain transfers associated with split dollar insurance arrangements.22 Charitable split dollar insurance reporting requirements are set forth in Notice 2000-24.23 For the split dollar rules, see Treasury Regulation Section 1.7872-15.24 See also Roark v. Commissioner (denying charitable income tax deductions where charitable split dollar life insurance policies were involved).25

2020 CARES Act

The CARES Act made several changes designed to encourage charitable giving during the COVID-19 outbreak. For the 2020 and 2021 tax years, the CARES Act amended IRC Section 62(a), allowing taxpayers to reduce adjusted gross income (AGI) by $300 worth of charitable contributions made in 2020 and 2021 even if they did not itemize ($600 for married taxpayers filing joint returns).

Under normal circumstances, taxpayers are only permitted to deduct cash contributions to charity to the extent those donations do not exceed 60 percent of AGI (10 percent for corporations).

The CARES Act lifted the 60 percent AGI limit for 2020 and 2021. In other words, cash contributions to public charities and certain private foundations in 2020 and 2021 were not subject to an AGI limit. Individual taxpayers could offset their income for 2020 and 2021 up to the full amount of their AGI, and additional charitable contributions could be carried over to offset income in a later year (the amounts were not refundable). The corporate AGI limit was raised to 25 percent (excess contributions also carry over to subsequent tax years).

1. IRC § 170(a).

2. Treas. Reg. § 1.170A-1(c)(1).

3. IRC § 170(p).

4. IRC § 170(b)(1)(I).

5. IRC § 170(b)(2)(A)(i).

6. See Winthrop v. Meisels, 180 F. Supp. 29 (D.C.N.Y. 1959), aff ’d, 281 F.2d 694 (2d Cir. 1960).

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7. Stubbs v. United States, 428 F.2d 885, 70-2 USTC ¶ 9468 (9th Cir. 1970), cert. den., 400 U.S. 1009 (1971).

8. Blake v. Commissioner, 697 F.2d 473, 83-1 USTC ¶ 9121 (2d Cir. 1982).

9. Sheppard v. United States, 361 F.2d 972 (Ct. Cl. 1966).

10. Treas. Reg. § 1.170A-1(h).

11. 477 U.S. 105 (1986).

12. Treas. Reg. § 1.170A-1(h)(1).

13. Treas. Reg. § 1.170A-1(h)(2).

14. See Sklar v. Commissioner, 125 TC 281 (2005); see also Sklar v. Commissioner, 282 F.3d 610 (9th Cir. 2002), aff ’g, TC Memo 2000-118.

15. Let. Rul. 200142019. See also Let. Ruls. 200228001, 200230039.

16. Treas. Reg. §§ 1.170A-1(h), 1.170A-13(f)(8).

17. Treas. Reg. § 1.170A-13(f)(8). See also Rev. Proc. 2022-38, Rev. Proc. 2023-34, Rev. Proc. 2024-40.

18. IRC § 170(l).

19. See TAM 200004001.

20. 1960-2 CB 73.

21. Let. Rul. 9829053. See also Let. Ruls. 200003013, 199929050.

22. See IRC § 170(a)(10); see also Notice 99-36, 1999-26 CB 1284.

23. 2000-1 CB 952.

24. TD 9092, 68 Fed. Reg. 54336 (9-17-2003); Notice 2002-8, 2002-1 CB 398.

25. TC Memo 2004-271; Addis v. Commissioner, 2004-2 USTC ¶ 50,291 (9th Cir. 2004) (cert. denied), aff ’g, 118 TC 528 (2002); and Weiner v. Commissioner, TC Memo 2002-153, cert. denied.