- When making charitable contributions, taxpayers often consider donating either appreciated real estate or personal property. While both can yield significant tax benefits, the IRS applies different rules regarding deductibility, Adjusted Gross Income (AGI) limitations, and carryforward provisions. Understanding these distinctions can help donors maximize their tax benefits.
1. Donating Appreciated Real Estate
Tax Deduction & Valuation
When a taxpayer donates appreciated real estate (held for more than one year), they can generally deduct the property’s fair market value (FMV) as determined by a qualified appraisal (IRC §170(f)(11)). Importantly, the donor avoids capital gains tax that would otherwise be due if they sold the property (IRC §170(e)(1)(A)).
AGI Limitations
For contributions of appreciated capital gain property to public charities, the deduction is generally limited to 30% of AGI (IRC §170(b)(1)(C)). If donated to a private foundation, the limit drops to 20% of AGI (IRC §170(b)(1)(D)).
Carryforward Rules
If the deduction exceeds the AGI limits, the taxpayer can carry forward the unused portion for up to five years (IRC §170(d)(1)).
2. Donating Personal Property
Tax Deduction & Valuation
For personal property, the deduction depends on how the charity uses the item:
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If the property is related to the charity’s exempt purpose, the taxpayer can deduct FMV (IRC §170(e)(1)(B)(i)).
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If unrelated (e.g., a painting donated to a hospital that sells it instead of displaying it), the deduction is limited to the lesser of FMV or the taxpayer’s cost basis (IRC §170(e)(1)(B)(ii)).
AGI Limitations
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1. General AGI Limits:
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o 50% Limit:
Contributions to 50% limit organizations (e.g., public charities, churches, educational institutions) are generally deductible up to 50% of AGI. irs.gov
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2. Non-Cash Contributions:
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o Capital Gain Property:
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30% Limit: Donations of appreciated capital gain property (e.g., stocks held over a year) to 50% limit organizations are deductible up to 30% of AGI.
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Election for 50% Limit: Donors can choose to deduct only the property's cost basis, allowing a deduction up to 50% of AGI.
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o Ordinary Income Property:
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50% Limit: Donations of property that would generate ordinary income or short-term capital gains upon sale are generally deductible up to 50% of AGI, limited to the lesser of fair market value or cost basis.
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3. Carryforward Provision:
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If contributions exceed AGI limits, the excess can be carried forward for up to five years, subject to the original percentage limitations in subsequent years.
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Key Considerations:
• Qualified Appraisal: Non-cash donations over $5,000 require a qualified appraisal.
• Documentation: Proper records are essential for all non-cash contributions.
Key Considerations:
Like real estate, any excess deduction can be carried forward for up to five years (IRC §170(d)(1)).
Key Takeaways
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Appreciated real estate donations provide an FMV deduction with a 30% AGI limit (public charity).
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Personal property deductions depend on the charity’s use—FMV if related, cost basis if unrelated.
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Both types of donations allow five-year carryforwards if deductions exceed AGI limits.
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Donors should obtain a qualified appraisal for contributions exceeding $5,000 (IRC §170(f)(11)(C)).
Strategic charitable giving, particularly of appreciated property, can maximize tax benefits while supporting meaningful causes. Taxpayers should consult with a qualified CPA or tax advisor to structure donations effectively.
