Congress allows a deduction for charitable contributions to encourage social responsibility. To be deductible, the donation must be made in cash or property. The value of a taxpayer’s time or the value of free use of the taxpayer’s property by the charitable organization does not qualify. However, out-of-pocket expenses related to qualified charitable activities are deductible as charitable contributions.

To be deductible, the donation must be made to a qualified recipient as listed in the tax law, including the following:

The following contributions are not deductible:

If a taxpayer has doubt as to the deductibility of a payment, he or she should review the IRS’s Cumulative List of Organizations, Publication No. 78.

If cash is donated, the deduction is equal to the amount of the cash. For donated property other than cash, the general rule is that the deduction is equal to the fair market value of the property at the time of the donation. The fair market valuefair market valuePrice at which knowledgeable and unrelated parties are willing to buy or sell property. (FMV) is the price at which the property would be sold between a willing buyer and seller.

There is an exception to this general rule for property that would have resulted in ordinary income or short-term capital gain had it been sold on the date of the contribution. In that situation, the deduction for the contribution is equal to the property’s FMV less the amount of the ordinary income or short-term capital gaincapital gainIn the context of contributions, it is property that would have generated a capital gains on the date of contribution using the fair market value. that would have resulted from sale of the property. If sale of the property would have produced a long-term capital gain, the deduction is generally equal to the FMV of the property. However, the FMV is reduced by the amount of the potential long-term capital gain if the donation is made to certain private nonoperating foundations or the donation is a contribution of tangible personal property to an organization that uses the property for a purpose unrelated to the organization’s primary purpose.

Generally, a taxpayer may not deduct total contributions in excess of 50% of the taxpayer’s AGI. This 50% limitation applies to donations to all public charities, all private operating foundations, and private nonoperating foundations if they distribute their contributions to public charities within a specified time period. Gifts to other qualified organizations, such as certain private nonoperating foundations, fraternal societies, and veterans’ organizations, as well as gifts for the use of an organization, are limited to 30% of AGI. Generally, contributions to 50% limit organizations are deducted first.

Contributions not allowed due to the AGI limitations may be carried forward for five years. The contributions may be deducted in the carryover years subject to the same percentage of income limitations that were applicable to the contributions in the year they originated. Contribution carryovers are allowed only after taking into account the current year contributions in the same category. Taxpayers should keep records, receipts, canceled checks, and other proof of charitable contributions. For gifts of property, clothes, and household goods totaling over $500, the taxpayer must attach a Form 8283, which requires the name and address of the donee, the date of the contribution, a description of the property, the approximate date of acquisition of the property, and certain other required information. For large gifts of property worth $5,000 or more, the donor must also obtain and submit an appraisal.

Beginning in 2007, cash contributions, regardless of the amount, are not deductible unless there is a bank record (canceled check, a bank copy of a canceled check, or a bank statement containing the name of the charity, the date, and the amount) of the contribution. Taxpayers who itemize deductions should use checks instead of cash for Sunday church and similar cash donations. A charitable organization knowingly providing false written acknowledgments is subject to penalty (generally $1,000 per event) for aiding and abetting in the understatement of tax liability. A penalty of $10 per contribution per event, capped at $5,000, may be imposed on charities failing to make the required disclosures for quid pro quo contributions.

Gifts of clothing and household items (including furnishings, electronics, appliances, and linens) are also subject to a new requirement. They must be in “good” condition to qualify for a deduction. Neither Congress nor the IRS has defined “good” condition.

No particular form is prescribed for the written acknowledgment, nor does the donor’s Social Security number have to be contained on the acknowledgment. It may be a receipt, letter, postcard, or computer form. The acknowledgment must be obtained on or before the date on which the tax return for the tax year of the contribution is filed, or by the due date (plus extensions) if it is earlier than the actual filing date.

Taxpayers donating used vehicles to charity may not claim a deduction greater than the amount for which the charity actually sells the vehicle. The charity will be required to provide the resale information on Form 1098C to taxpayers donating vehicles. The same rule will also apply to boats and planes donated to charity. Taxpayers must attach the Form 1098C to their tax return to substantiate the deduction. Taxpayers may claim an estimated value for the auto if the charity does not sell it, but rather uses it or gives it to a needy individual. The charity must certify that an exception applies if no resale amount is provided on the Form 1098C.

For quid pro quo contributions, written statements (disclosures) are required from the charitable organization to donors making contributions of more than $75. The disclosures need not be individual letters to donors; they simply provide the donors with good-faith estimates of the value of the goods or services and inform the donors that only the amounts of the contributions in excess of the value of the goods or services are deductible for federal income tax purposes.

Go to Publication 17 and read Chapter 24: Contributions.