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THE LIMITS OF CHARITABLE GIFTS
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?
Regards,
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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