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Below is a recent email we received questioning the amount of money that can be deducted from taxes when giving a gift as charity. If you have questions related to this topic, please contact us.

Dear Star Loan Services,
I have set up a charitable foundation through an investment company and have been making regular contributions towards it. I typically contribute appreciated securities annually and am able to deduct the value up to 25% of my gift to the foundation. However, I was recently informed by my broker that I couldn't obtain a deduction for securities that I have owned for less than one year. Is this an accurate statement? If yes, why is this the case?


Mike S.
Passaic, New Jersey

Dear Mike,
You are not receiving the entire story from your broker. You are able to make a gift of short-term holding-period property to your 'foundation'. However your available deduction is going to be limited to the cost of the assets and not its value. Short-term holding period is indicative for securities you own for one year or less.

Your deduction is limited to the cost of the asset if you give property that would either produce regular income or a short-term capital gain on its sale. Some examples of ordinary-income property are inventory, artwork created by the donor and manuscripts prepared by the donor. If you offer an asset that you have owned for more than one year, your deduction is the fair market value of the asset the date you give the gift to the charity.

Your total amount of charitable deductions are limited to an overall percentage of your adjusted gross income. Typically, you are limited to 50% of your adjusted gross income when totaling your possible overall deduction for all contributions. This includes cash contributions to publicly supported charities. Long-term capital gain properties are limited to deduction to 25 percent of your adjusted gross income, not 25 percent of its value as you stated.


For example, if your adjusted gross income was $300,000 in 2006 and you made cash contributions of $100,000 and stock held for more than one year worth $100,000, your maximum deduction for charitable contributions for the year is $200,000 (50 percent of your AGI). The remaining $100,000 would be carried forward to the next five tax years and available for deduction dependent on the overall 50% restraint.

The $100,000 carry forward would consist of $40,000 in contributions that could not exceed 30 percent of your AGI in the next year. For example, if your AGI was $200,000 in 2008 and you made no other charitable contributions, your charitable deduction for 2008 would be $40,000, of which $30,000 comes from the long-term property carryover and $10,000 comes from the remaining cash contribution in 2007.

The $10,000 that has not been used will carry over to 2009, keeping its 30 percent of AGI quality.

All of this is very complicating. Therefore if you have a great deal of money to give away as charity, utilize the services of an accountant so that you maximize your deductions.


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