Taxes: Carrying Over Charitable Givings
If you make tax deductible donations to charities during the year, the IRS limits your ability to claim a deduction for all of them in a single tax year if your total deduction exceeds one of the three adjusted gross income (AGI) limitations on charitable contributions. However, you can always carry over your excess charitable givings and deduct them on one of your next five tax returns.
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How to Carryover
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When one of the AGI limitations precludes you from claiming a deduction for all of your donations, the IRS lets you carry them forward to deduct over a five-year period. However, as you use the carryover deductions in future tax years, you must deduct the older donations before the more recent ones. Moreover, the same AGI limitation that applies to each charitable contribution in the year you make the donation will also apply in any of the five years you claim the deduction.
50 Percent AGI Limitation
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The most common of the three limitations is the one that applies to donations you make to 50-percent-limit organizations. A 50-percent-limit organization covers most tax-exempt charities such as educational institutions, religious organizations and hospitals. When you prepare your tax return, you must identify the donations you make to these types of organizations and calculate the total of all cash contributions and the fair market value of property contributions. The portion of the total that exceeds 50 percent of your AGI is nondeductible in the year you make the donation and is subject to the 5-year carryover period.
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30 Percent AGI Limitation
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If the charity you make a donation to isn’t a 50-percent-limit organization, which you can verify in IRS Publication 78, the applicable limitation on those donations is 30 percent of your AGI. These types of organizations typically include veterans’ organizations, fraternal societies and nonprofit cemeteries. A 30-percent limitation also applies to the donations of capital gain property you make to a 50-percent-limit organization. Capital gain property includes all property that is worth more on the date of your donation than the price you purchased it for. However, the 30-percent limitation only applies when you choose to deduct the property’s fair market value. If you decide to use your acquisition price as the deductible amount instead, the 50-percent AGI limit applies.
20 Percent AGI Limitation
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Making a donation of capital gain property to a 30-percent-limit organization comes with a 20-percent AGI limitation. This limitation applies to all property donations you make, even if not capital gain property, to any organization that isn’t a 50-percent-limit organization that uses the property for internal use. For example, if you donate a rare piece of artwork to a fraternal society, and rather than selling the art and using the funds to further its tax-exempt purpose the society decides to put the art on display in its office, this will constitute internal use of your donation by the society.
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