Tax Deduction Limits for Charitable Contributions
If you've done a lot of charitable giving this year, you may need to scale back your charitable deduction and pay a little more tax than you thought. This is because the IRS limits your annual deduction based on a percentage of your adjusted gross income (AGI). However, if you can't deduct everything this year, you may be able to carry it forward to other tax years.
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Vehicle Donations
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The IRS requires you to follow specific guidelines when donating a used vehicle to charity, which in many cases requires that you reduce the deduction below the car's fair market value. When you donate the car, the first thing you must do is figure out how much it's worth. The best way to do this is by referencing a used-car guide. Although there are many out there, the IRS requires you to use one that bases value on factors such as the year, model, mileage and mechanical and body condition. Once you donate the car, the charity should send you a Form 1098-C. This document will report the price the charity sells the car for. If this amount is less than the value you estimated using the price guide, you have no choice but to use the sales price as your charitable deduction.
50-Percent-Limit Organizations
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Normally, the IRS limits your annual charitable deduction for most donations to a maximum of 30 percent of your AGI. However, the limit increases to 50 percent of your AGI for the donations you make to a "50-percent-limit" organization. You can easily check to see if the charity you donate to qualifies you for the higher limit by accessing Publication 78 on the IRS website.
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Appreciated Property
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The IRS places a limit on deductions for appreciated property, that is, property worth more now than when you bought it. Generally, you are only affected by the limitation when the total value of these annual donations is more than 20 percent of your AGI. A higher limitation will apply if you donate the appreciated property to a "50-percent-limit" organization. In that case you have two options: you can value the property at its fair market value and be limited to a 30 percent AGI limitation or use the original cost of the property with an AGI limitation of 50 percent.
Itemized Deductions
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One of the more limiting rules regarding charitable deductions is that they are only available to taxpayers who itemize their deductions. If you claim the standard deduction this year, you cannot claim a deduction for your donations. However, if you do happen to itemize your deductions in any of the next five tax years, the IRS allows you to carry forward the donations to claim a deduction.
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