Understanding Charitable Contributions: What Qualifies and What Doesn’t

This step-by-step guide walks you through how to plan, make, document, and claim charitable contributions so your tax deduction is protected. It focuses on giving to qualified organizations, what the IRS allows, what it rejects, and the records you must keep at each stage. It also explains special rules for non-cash gifts, vehicles, and out-of-pocket volunteer costs. Throughout, you’ll see where your actions are required and what you can expect from charities and the IRS.

Step 1: Choose the right recipient before you give

Start by confirming the group is a “qualified organization.” Only gifts to qualified organizations are deductible.

Common qualified organizations include:
– Churches, synagogues, mosques, temples, and other religious bodies
– Most nonprofit charities (for example, the Red Cross and the United Way)
– Most nonprofit educational groups (Boy Scouts, Girl Scouts, colleges, museums)
– Nonprofit hospitals and medical research organizations
– Utility company emergency energy programs, if the utility acts as an agent for a charity
– Nonprofit volunteer fire companies
– Public parks and recreation facilities
– Civil defense organizations

Avoid nonqualified organizations — donations to these are not deductible:
– For-profit groups
– Certain state bar associations
– Chambers of Commerce and other business leagues
– Civic leagues and associations
– Country clubs and social clubs
– Homeowners’ associations
– Labor unions
– Political organizations and candidates
– Foreign organizations (with specific exceptions for some Canadian, Israeli, or Mexican charities)

Action: verify the group’s status and keep proof of its name.
What to expect: the charity may confirm its status; many larger nonprofits publish this on their websites.

Step 2: Decide what to give and understand limits

Cash gifts are usually straightforward, but property gifts have special rules.

Key rules:
– Capital gain property (e.g., stock held more than one year) is generally deductible at its fair market value (FMV) on the date of the gift.
– Ordinary income property (e.g., stock held 1 year or less, inventory, art you created, property with depreciation recapture) is limited to FMV minus the amount that would be ordinary income or short-term gain if sold — in practice often limited to your cost basis.
– If you report the related ordinary or capital gain in the same year as the contribution, you do not reduce the charitable contribution for that gain.
– If property has lost value, your deduction is limited to the lower FMV; you cannot deduct original cost for items (clothing, furniture, appliances, cars) that declined in value.

Example:
– You donate stock held 5 months to your church. FMV is $1,000; you paid $800. Because the $200 would be short-term gain if sold, your deduction is limited to $800.

Action: identify the type of property and check which rule applies.
What to expect: you determine FMV; for some items, an appraisal may be required later (see Step 5).

Step 3: Make the gift and get the right receipt

Cash contributions include cash, check, electronic funds transfer, credit card, debit card, and payroll deduction.

You must keep one of the following records:
– Bank records (canceled check or statement)
– A receipt or written communication from the qualified organization with its name, the date, and the amount
– Payroll deduction records

Important: for any single cash contribution of $250 or more, you must receive a contemporaneous written acknowledgment from the qualified organization or have certain payroll deduction records. The acknowledgment must include:
– Charity name
– Amount of cash and a description (but not value) of any non-cash contribution
– A statement that no goods or services were provided, if true
– If goods or services were provided, a description and good faith estimate of their value
– A statement if any provided goods or services were entirely intangible religious benefits, if that applies

Action: keep bank proof for all cash gifts; request the written acknowledgment for any gift of $250 or more.
What to expect: the charity issues a written acknowledgment; for events, it should tell you the value of any benefit you received.

Step 4: If you’re giving non-cash items, check condition and value

Donated clothing or household items must be in good used condition or better to qualify.

Valuation tip:
– A practical way to value these items is to look at what similar items sell for in thrift or consignment shops.

Exception:
– You may claim a deduction for items in poor condition only if the deduction is more than $500 and you attach a qualified appraisal with your return.

Action: donate only items in good condition or get an appraisal if your deduction for poor-condition items exceeds $500.
What to expect: you’ll determine FMV and condition; you’ll need extra forms for larger totals (covered next).

Step 5: When forms and appraisals are required

Documentation thresholds and forms:
– If your total non-cash gifts exceed $500, you must file Form 8283. Link: IRS About Form 8283.
– The IRS requires a qualified appraisal for any single item or group of related items valued at more than $5,000.
– For vehicles, if you deduct more than $500, attach a copy of the contemporaneous written acknowledgment from the charity. The charity may use Form 1098-C copy B for this purpose. Link: IRS About Form 1098-C.

Vehicle deduction rule:
– Your deduction is the smaller of the vehicle’s FMV on the donation date or the gross proceeds from the charity’s later sale.
– A reasonable FMV measure is a price from a used vehicle pricing guide for a similar vehicle private-party sale.
– The acknowledgment generally must be issued within 30 days of the contribution or later sale.

Action: gather appraisals where required and attach the right IRS forms with your return.
What to expect: the charity issues the vehicle acknowledgment, often on Form 1098-C.

Step 6: Apply the percentage limits to your adjusted gross income (AGI)

General limits (2018–2025):
– Cash contributions: up to 60% of AGI for gifts to qualified organizations
– Non-cash contributions: generally 50% of AGI

Additional limits depend on the organization and property type:

50% limit organizations (examples: churches, certain educational organizations, hospitals, publicly supported charities)
– Cash to these organizations: up to 60% of AGI
– Non-cash to these organizations: up to 50% of AGI
– Special rule: gifts of capital gain property to these organizations face a 30% limit unless you use cost in place of FMV, in which case the 50% limit applies.

30% limit applies to:
– Gifts to qualified organizations other than 50% limit organizations (e.g., veterans’ organizations, fraternal societies, nonprofit cemeteries, certain private non-operating foundations)
– Cash contributions made “for the use of” an organization (held in trust or similar arrangement)

20% limit applies to:
– All non-cash gifts of capital gain property to organizations other than 50% limit organizations or “for the use of” any qualified organization.

Tip: The special 30% limit for capital gain property is separate from the other 30% limit. A gift under one 30% limit doesn’t reduce what you can claim under the other 30% limit, but your total still cannot exceed 50% of AGI.

Carryovers:
– If your gifts exceed the limits, you can carry over the excess for up to 5 years (not beyond), except qualified conservation contributions, which can be carried forward for 15 years.

Action: categorize the organization and property, then apply the right AGI limit.
What to expect: you may need to track carryovers across returns.

Step 7: Reduce your deduction if you received a benefit

If you receive goods or services in return for your gift, reduce your deduction by the FMV of the benefit.

Examples:
– You pay $65 for a church dinner dance ticket; the dinner’s FMV is $25. Deductible gift = $40.
– You pay $600 at a charity auction for a week at a beach house and that price matches fair rental value. You have no deductible gift.

Special note:
– No deduction is allowed for any payment to a college or university in exchange for the right to buy tickets or seating at an athletic event.

Action: subtract the FMV of any benefit from your payment and keep the charity’s disclosure.
What to expect: reputable charities disclose the value of goods or services provided.

Step 8: Track out-of-pocket costs when you volunteer

You cannot deduct the value of your time or services. However, you may deduct certain unreimbursed out-of-pocket costs if they are:
– Directly connected with the services
– Incurred only because of the services
– Not personal, living, or family expenses
– Unreimbursed

Mileage and travel:
– For 2023, the standard mileage rate is 14 cents per mile for driving while giving services to charitable organizations.
– You can’t deduct sightseeing, theater tickets, nightclubs, fishing trips, or expenses for family members.

Conventions:
– If you are a chosen representative attending a convention of a qualified charity, you may deduct actual unreimbursed travel and transportation and a reasonable amount for meals and lodging while away from home overnight.
– If you attend simply as a member, these expenses aren’t deductible.

Action: keep detailed logs and receipts for mileage and travel related to service for a qualified organization.
What to expect: no special form from the charity is required for these costs, but your records must be clear.

Step 9: File your tax return with the proper documents

When you file, include:
– Bank records and charity acknowledgments for cash gifts
– Form 8283 for non-cash gifts over $500
– Qualified appraisals for single items or related groups over $5,000
– Form 1098-C acknowledgment for vehicle gifts where you deduct more than $500

Practical tip:
– According to analysis by VisaVerge.com, donors who organize documents by gift type (cash, property, vehicle, volunteer expenses) and by organization category tend to avoid common errors with AGI limits and benefit reductions.

Action: assemble all records and attach required forms.
What to expect: the IRS relies on your attached forms and may match vehicle data using Form 1098-C.

Official references and where to learn more

For detailed IRS rules on charitable contributions and qualified organizations, see the IRS guidance here: IRS Charitable Contributions and Qualified Organizations.

Remember these nondeductible cases to avoid surprises:
– Gifts of your time or services
– Partial interests in property (for example, donating only the right to use space while you still own it)
– Payments to specific individuals (including clergy members who can spend the money as they wish, or a hospital donation for a specific patient)
– Expenses paid for another person who provided services to a qualified organization

Final action: if in doubt, ask the charity how it will receipt your gift and keep simple, consistent records.
Final expectation: most large nonprofits have clear processes for receipting and vehicle acknowledgments, often using Form 1098-C.