When donors work with professionals, they can maximize their tax deductions.
According to the National Philanthropic Trust, Americans donated an estimated $358 billion to charities in 2014, a 7.1 percent increase compared to 2013. That's great news for philanthropies.
Charitable donation planning can occur anytime during the year and generally starts as a conversation with the donors' financial planner or accountant to look at projected income and determine the amount to contribute toward charities and the amount that will qualify for a deduction. The first step is to identify the charities that donors are interested in supporting to be certain those organizations are approved by the Internal Revenue Service. Then the donation will qualify for a tax deduction.
Assets for Contributions
An important step is to identify the assets to use for contributions, e.g., cash, long-term capital gain property, or a distribution from an individual retirement account if the donor is over 70½ years of age. Project the amount of deduction contributors can use on their tax return, which is a maximum of 50 percent of adjusted gross income.
When varying types of assets are used for contributions, specific deduction ceilings apply in each category. Typically, a deduction ceiling of 50 percent, 30 percent, or 20 percent of AGI applies. Usually, it's 50 percent for cash contributions. For appreciated property, it's generally 30 percent, however, in some instances, it can be 50 percent or 20 percent.
This is where the assistance of a financial planner or accountant is valuable, assisting donors in maximizing the deductions available for their contributions and navigating the exceptions.
When there are contributions in different categories with different limits, the ceilings are applied in a specific order until the overall 50 percent ceiling of AGI is reached. The ranking order of desirability is 50 percent for cash, 30 percent for real property, 20 percent when capital gain property is donated for use by the charitable organization, 50 percent for qualified conservation contributions, and 100 percent for qualified conservation contributions made by farmers and ranchers.
If contributions in all categories exceed the limits, the excess can be carried over for five years. There are further qualifiers and exceptions within these categories. Consult with a financial planner or accountant when making multiple donations from different categories.
Giving in Action
Here's a specific example. Donor A is a widowed woman of 72, who has an AGI of $100,000. Therefore, her total deduction for the year cannot exceed $50,000, or the 50-percent limit. Donor A decides to make a $10,000 one-time cash contribution to a qualified not-for-profit foundation.
Three years ago, Donor A inherited a property that she also decides to donate for a larger tax deduction. Her question is: What is the value of the property donation, this year and in future years?
The market value of the property is $100,000. There is no mortgage on the property, so her donation of the property will provide $100,000 for tax deductions, subject to limits, during the current year and the carryover years. In the current year, at the 30-percent limit for long-term capital gain property, she may deduct $30,000. That with her cash contribution of $10,000 equals $40,000 and is within her $50,000 limit.
However, Donor A has a carryover of $70,000 from her property donation. As a result, she can take advantage of the five-year carryover rule and deduct most of her property donation in future years, depending upon her other contributions.
Timing for Contributions
If it's late in the year, prospective donors will probably receive many calls from charitable organizations for year-end donations. Cash is always an option. If stock will be donated, certain delivery rules apply. If a certificate is delivered to a bank or broker, or to the issuing corporation, the donation is not complete until the stock is transferred to the charity on the corporation's books, which may take several weeks.
If mutual fund shares are to be donated, confirm with the fund company that the transfer of shares can be completed by the end of the year. Donors don't want to miss out on a deduction because of timing.
Finally, if potential contributors have money to donate but haven't selected a charity, a donor advised fund is an option. It allows donors to receive an immediate tax deduction in the year the irrevocable contribution is made. The assets can be invested and grants to charities can occur over a period of time rather than immediately.
Based on the above information, planning your charitable donations is beneficial to achieve maximum tax deductions.
Advance CCIM Education Through Giving
Consider donating contributions to the CCIM Foundation to
advance commercial real estate education and research. This organization gives
scholarships to those earning the CCIM designation through CCIM chapters
These donations can take many forms. Explore one-time gifts,
planned giving options, and gifts of stock at www.ccimef.org/give-now.asp.