The Tax Cuts and Jobs Act goes into effect on January 1, 2019, and with it will come many changes to the kinds of deductions tax filers are able to claim. Charitable contribution deductions, however, will continue to exist in their current form.
Under charitable deduction rules, you are allowed to deduct contributions of property or money made to qualified organizations, with the deductions being up to 50 percent of your adjusted gross income (though there are some limitations that apply in certain cases). Qualified deductions are listed under section 170(c) of the Internal Revenue Code, and include the following:
- A state or territory of the United States, the District of Columbia or the United States itself, if the contribution is made for public purposes;
- A community chest, trust, fund, corporation or foundation created in the United States or under the laws of the United States for charitable, religious, educational, literary or scientific purposes (think a 501(c)3 nonprofit);
- A church, synagogue or religious organization
- A war veterans’ organization or its trust or foundation;
- A nonprofit volunteer fire company;
- A domestic fraternal society, operating under the lodge system, if the contribution is to be used for charitable purposes;
- A civil defense organization created under federal, state or local law;
- A nonprofit cemetery company if the funds are dedicated to the ongoing care of the cemetery as a whole and not a particular crypt or lot
Any contributions you make to these types of entities must be paid in cash or other property before the close of the tax year for which you are claiming the deduction. If you decide to donate property other than cash, you may deduct the fair market value of that property. However, if that property has appreciated in value, you might need to make some adjustments to your filing, which an accountant can help you with.
Deduction limitations
As we mentioned previously, there are some limitations to the deductions you can take.
In general, any contributions you make to charitable organizations can be deducted up to 50 percent of your adjusted gross income. Contributions to some private organizations, fraternal societies, veterans organizations and cemetery organizations can be limited to 30 percent of your adjusted gross income.
There are also special limitations that apply to gifts that have long-term capital gains. IRS Publication 526 outlines those special limitations and how they could potentially affect your tax return.
In addition, if you donate your money or property to any foreign organizations, there may be some additional exceptions you must consider, but most of the time these organizations will be treated the same as any domestic organization in terms of deduction limitations.
For more information about charitable contribution deductions, contact us at MCG Solutions.