March 1 2023

How do I get a tax deduction for charitable donations?

Table of Contents

How do I get a tax deduction for charitable donations?

Summary

To qualify for a tax deduction, you must itemize the deductions on your tax return. You can either take the standard deduction set by the IRS, or you can itemize (spell out) individual deductions. You don’t get a dollar back for each dollar you donate. Your actual tax savings are based on the amount of your donation multiplied by your tax bracket.

Charitable Item and Stock Donations Deduction

Most people have heard about taking tax deductions for items that are donated to charity, such as clothing, household items, cars and stocks.

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To qualify for a tax deduction, you must itemize the deductions on your tax return. Itemized deductions are certain types of expenses that you have during the year, such as mortgage payments and charitable contributions.

You can either take the standard deduction set by the IRS, or you can itemize (spell out) individual deductions.

How do I figure out what my donation is worth?

The amount you can deduct is usually the fair market value of the items. Fair market value is the amount someone would willingly pay for them. You can estimate fair market value by figuring out what you’d pay for the items at a garage sale or a thrift store.

If you donate a car or other vehicle to a charity and they sell the vehicle, they’re required to tell you the amount they received for it. Use that amount for your deduction.
If your car sold for more than $500, the charity will give you Form 1098-C, which tells you the amount it was sold for. You must attach the Form 1098-C to your tax return.

Note: You can’t claim a deduction for a donated vehicle until it has been sold and you know the amount it was sold for.

If the charity kept the car for its own use or gave or sold the car to a needy individual at a discounted rate, they’ll also give you Form 1098-C. In this rare case, you can use the fair market value for your deduction. To find this value, check online car valuation services, online auction sites, or the newspaper for comparable sales amounts.

How does my donation lower my tax bill?

Although donations can help you save money on your tax bill, you don’t get a dollar back for each dollar you donate.

Your actual tax savings are based on the amount of your donation multiplied by your tax bracket. For example, if you’re in the 20% tax bracket and you donate $100, your actual tax savings will be $20.

What organizations qualify for this deduction?

To get a deduction, you must donate to a qualified organization. A qualified organization is one that is organized and run for religious, charitable, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals.

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Use the IRS Exempt Organizations Select Check to find information on organizations eligible to receive tax-deductible contributions (Pub. 78 data). First go to www.irs.gov and search for Exempt Organizations Select Check. Then follow the instructions to search IRS Exempt Organizations Select Check for the charity you are interested in. Then follow the instructions to search IRS Exempt Organizations Select Check for the charity you are interested in.

Tip: If you’re not sure whether an organization is a real charity, try using IRS Exempt Organization Select Check or call the IRS at 1-800-829-1040.

How much can I deduct?

Generally, the amount you can deduct for cash is limited to 60% of your adjusted gross income (AGI). For donated items, it’s limited to 50% of your AGI. To do the calculation, you multiply your AGI by 60% or 50% to find out the dollar amount you can deduct. Your cash contribution must be counted against the limit first, then your donated items. We’ll calculate these amounts for you.

Example: If your adjusted gross income is $50,000 and you donated $20,000 in cash and $15,000 worth of goods. You can deduct only $5,000 of the goods this year ($25,000 limit – $20,000 cash donation = $5,000). Next year, you can deduct the remaining $10,000 (depending, of course, on your AGI). See charitable contribution carryover deduction for more information about charitable carryovers.

You can deduct only up to 30% of your AGI for donated items that you’ve owned for more than a year that have increased in value. This is not common. Most people don’t need to be concerned with these limitations unless they’re donating large or valuable items like real estate or an art collection.

Donations to certain charities and private foundations are subject to stricter AGI limitations. Ask the charity about which AGI limit applies to your donation.

What paperwork do I need?

For donations worth up to $500, you need a written receipt from the charity. Keep it with your records.
For donations worth over $500 but not more than $5,000, we will collect some additional information from you. We’ll use this info to create Form 8283, Noncash Charitable Contributions, which reports how you got the property (purchase, gift, etc.), the approximate date you received it, and the cost. You’ll simply attach this form to your return.
For donations worth over $5,000, in addition to the above items, you’ll probably need a written appraisal. No appraisal is needed for donations of publicly traded securities, such as stocks or mutual funds.

If an appraisal is required, the charity will also need to sign and complete the part of the Form 8283 that’s included with your tax return. See other deductible expenses for information on deducting appraisal fees for donated property.

If your donation is limited to the cost of the item rather than its fair market value, keep a record of what you paid for the item.
For large donations of many items, consider taking a photo of the items for your records.
You’ll need Form 1098-C from the charity for donations of vehicles worth more than $500.

Deductions related to the charitable item and stock donations deduction

Money Donations Deduction
Charitable Travel and Mileage Donation
Charitable Contribution Carryover Deduction Other Deductible Expenses (for appraisal fees for donated property)
IRS info about the charitable item and stock donations deduction
IRS Publication 526, Charitable Contributions
IRS Publication 561, Determining the Value of Donated Property
IRS Publication 551, Basis of Assets

Additional info about donations and deductions

Although these situations aren’t as common, they may apply to certain donations and deductions.

In some cases, you cannot claim a deduction for the current fair market value of your donated items. Instead, your deduction is your tax basis in the property. Usually, your tax basis is equal to what you originally paid for the item. (If you used the item for business, it’s the original cost minus any depreciation you claimed.) These cases include:

Items that have gone up in value since you bought them and that you’ve owned for a year or less.
Art that you created. The deduction for art you created yourself is limited to your cost, not the fair market value of the artwork.
Items that are inventory in your business.
Depreciable business property such as desks, computer equipment, or vehicles.
Items that have gone up in value since you bought them and that you owned for more than a year, but whose use is unrelated to the charity you’re donating them to.

Tip: Match the donated items that have gone up in value (appreciated) to the appropriate charity. For example:

Donate your appreciated doll collection to a doll museum, or your train memorabilia collection to a train museum, etc. Get written documentation from the charity that they’ll add the items to their collections, rather than sell them. That way you can claim a deduction for the fair market value, rather than being limited to just your tax basis.

If you donate a vehicle for which you were claiming the standard mileage rate deduction for business, figuring your tax basis can be complicated. Each year, part of the standard mileage rate is deemed to be for depreciation. You can find this information in IRS Publication 463, Chapter 4, Transportation.
If you donate publicly traded stock that you’ve owned for more than a year, it does not matter if the charity sells the stock right away. You can still claim a deduction for the fair market value of the stock on the date of the donation. The value is the average of the high and the low selling price of the stock on that date.

Tip: If you donate appreciated stock that you’ve owned more than a year, you don’t have to pay tax on the capital gain. Important: You must wire transfer the stock directly to the charity. If you sell it first and then donate the proceeds to the charity; you will have to pay capital gains tax.