It is a wise idea for anyone making tax-deductible donations to research, in advance, the tax-deductible status of the organization they will be giving to. Donations are tax-deductible if they meet certain tax requirements. Donations to any organization, no matter who gives them, can have tax-deductible benefits. The main tax-deductible donations benefits are charity gifts. Gifts to non-profit organizations and political organizations are tax-deductible donations. Any tax-deductible donations made to in-kind services are tax-deductible donations.
Types of Tax-Deductible Donations
There are two types of charitable donations to registered charities: tax-deductible donations to qualifying private organizations and tax-deductible donations to qualifying public organizations. These two types of donations are distinct because they take a different form and amount in tax terms. In the case of tax-deductible donations to qualifying private organizations, the organization must have been established for a specific time, the period of which is considered part of the donor’s status. In the case of tax-deductible donations to qualifying public organizations, the organization must have been established for a specific tax year, the tax year for which the donation is made.
Tax-deductible donations to qualifying private organizations include cash donations, loans, mortgages, securities, and life insurance policies. Generally, it is the property, rather than the tangible assets, that are deductible under the tax laws of most states. It is generally better to donate tangible assets than intangible assets because the tax deduction for donations to qualifying private or non-profit organizations is generally limited to 50% of the fair market value of the property transferred. When donating, it is wise to consult a tax expert to ensure the tax-deductible status of the transaction.
Tax-deductible contributions to qualifying charitable organizations are tax-deductible to the extent of the actual value of the contribution, provided to the charity. The tax-deductible amount for a tax-deductible contribution generally is limited to the value of the property transferred. If the property donated has increased market value since it was donated, then the actual increase in value of the property donated may be considered in computing the tax-deductible compensation. However, if the property donated is older than the year it was donated, the actual increase in value of the property can only be considered for the year the property was built, rather than the year of its construction.
Property donated to qualifying charities is generally deductible based on the fair market value of the property, as determined by the IRS. Fair market value is generally defined as the price that a person would pay to buy the property tax-deductible. A fair market value determination may depend on many factors including the condition of the property, its age, the value of similar structures in the community, and any improvements that have been made to the property.
There are a few exceptions to the general rule that tax-deductible donations must be property. Some tax-deductible donations are gifts of real estate, and the provision of facilities for education, art, historical preservation, or research. Real estate is usually treated as a valuable asset, and therefore the fair market value of the property can be considered. However, if the real estate is significantly damaged during an unfortunate calamity, the value of the damaged real estate is generally not depreciated. Another exception to the rule is if the charitable contribution is in the form of a paid-off mortgage. Mortgage payments are tax-deductible in the year they are made.
Tax-deductible donations include any amount that is deducted as a charitable contribution. Any amount that is donated to a qualified charity is included in the gross receipts and will be taxable. However, tax-deductible donations of real estate are tax-deductible only if they meet the standards for a qualified written donation. The requirements for a written donation vary from donor to donor and are dependent upon the status of the donor and the value of the gift. Any amount donated under the exception for capital gains, however, must be itemized deduction.
The second most common type of tax-deductible contributions is qualified charitable contributions. Qualified charitable contributions are those that meet the requirements for a qualified written donation. These generally include any amount that is paid to a qualified charity. Although these generally deductibles are tax-deductible, the amount paid to a qualified charity is deductible only to the extent it is more than the tax-deductible portion of the payment.