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Income
Limits
on
Charitable
Deductions
All slides are
taken from this
book.
Available from
Amazon.com
Full color version available at
www.createspace.com/4707238
If you want to ask
BIGyou need to ask for
gifts of assets.
If you ask for gifts
of assets, you need
to know these
rules
We pay
taxes on
income
Charitable
gifts can
sometimes
be deducted
from taxable
income,
thereby
reducing
taxes owed
Charitable deductions are limited to
20%, 30%, or 50% of income
depending on the gift and recipient
Why should we
limit charitable
deductions?
Encouraging
giving is good,
but at least
some revenue
should go to
the
government
Otherwise,
wealthy
people could
pay zero
taxes by
annually
transferring
assets to
charity
Taxes? Oh, no, we don’t pay taxes.
Why are
people making
such large
donations,
anyway?
Are people taking vows of poverty and
giving away everything they earn?
Actually, the
limits are an
issue with
gifts from
assets
where
wealth is far
greater than
annual
income
A common issue with wealthy
retiree donors who
have limited
taxable
income
but large
assets
Some gifts
may be
deducted up
to 50% of
income if
given to a
public charity,
government,
or an
operating
private
foundatio...
Public
CharityAnything EXCEPT long-
term capital gain
or a farmer giving a
qualified conservation easement
50% limit
50% limit
Money
(given or spent
performing services
for the charity)
Public
Charity
50% limit
Any ordinary
income property
Public
Charity
Ex: Creations by the donor
Public
Charity
50% limit
Any ordinary
income property
Public
Charity
Any ordinary
income property
50% limit
Short-Term Capital
Gain Property
(held 1 year or less)
Cash and ordinary income property are
treated the same because they aren’t
long-term capital gain property
1990 Paid: $1
Current Value: $25
Long-term (>1 year) capital gain property
If fair market value of
gain property can be
de...
1990 Paid: $600 acre
Current Value: $2,800/acre
Long-term capital gain property
deducted at fair market value
and given to...
1990 Paid: $600 acre
Current Value: $2,800/acre
“Special election” values all long-
term capital gain gifts in a year at
b...
A similar idea applies to long-term
capital gain tangible personal property
(All the stuff in your garage, including cars,...
Public Charity1990 Paid $1
Current Value: $25
50% limitlong-term capital gain tangible personal
property valued at BASIS d...
Public Charity1990 Paid $1
Current Value: $25
30% limitlong-term capital gain tangible personal
property valued at FAIR MA...
30% limit
if “for the use of” charity
Concept: Money given “in trust” to another entity but charity gets current benefit
1...
So, that covers gifts
to public charities.
What’s about gifts to
private foundations?
Anything EXCEPT long-
term capital gain
30% limit
Bill & Melinda Gates
Private Foundation
Private
Foundation
(non-operatin...
30% limit
Money
(given or spent
performing services
for the charity)
Private
Foundation
(non-operating)
Bill & Melinda Gat...
30% limit
Any ordinary
income property
Ex: Creations by the donor
Private
Foundation
(non-operating)
Bill & Melinda Gates
...
30% limit
Any ordinary
income property
Private
Foundation
(non-operating)
Bill & Melinda Gates
Private Foundation
Any ordinary
income property
30% limit
Private
Foundation
(non-operating)
Bill & Melinda Gates
Private Foundation
Short-Te...
20% limit
1990 Paid $1
Current Value: $25
Bill & Melinda Gates
Private Foundation
Long-Term Capital Gain Property
Private
...
20% limit
Bill & Melinda Gates
Private Foundation
Private
Foundation
(non-operating)
Long-Term Capital Gain Property
(incl...
C-corp: limited to 10%
of taxable income with
5-year carry forward.
S-corp: passes through all
deductions to
shareholders....
Current Value: $25
1990 Paid $1
Long-term capital gain property valued at basis
“unrelated” use tangible
personal property...
Current Value: $25
1990 Paid $1
“related use” tangible
personal property
Public
Charity
Private Foundation
(non-operating)...
Any long-term capital gain property
Current Value: $25
1990 Paid $1 Private Foundation
(non-operating)
Bill & Melinda Gate...
What happens if
you give more
than the limit?
The excess
deduction may
be used later (as
soon as
charitable
deductions do
not exceed the
income limits),
but must be use...
Unused charitable
deductions may be carried
over for up to 5 years
Year 1
Charitable
Deduction
Maximum
for Each Year
Deduc...
Not
Deductible
in Year 2
(over limit)
Oldest carryover
deductions are used first
Charitable
Deduction
Maximum
for Each Yea...
What happens
to a carryover
deduction if I
don’t itemize
(i.e., just take
the standard
deduction)?
Charitable
Deduction
Maximum
for Each Year
Deductible
in Year 1
(under
limit)
Not
Deductible
in Year 1
(over limit)
Carryo...
What happens to a carryover
deduction if the donor dies?
The carryover
deduction is
lost at death.
For joint returns, the carryover that could have
been claimed by the decedent if...
How do the different
limits work together?
Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income
Each limitation rule is like a glass that
...
Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income
Any overflow in any category is carried
ov...
Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income
$30,000 FMV LT capital gain
property to pu...
Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income
$100,000 income
 $50,000



$30,000
$2...
Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income
 $50,000



$30,000
$20,000
$0
No carr...
If not all gifts can be
deducted (i.e., there is
carry over) which gifts
get deducted first?
Current Value: $25
1990 Paid: $1
Current Value: $25
1990 Paid: $1
Cash or ordinary income property
LT capital or tangible ...
Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income
$30,000 cash to public charity
$30,000 FMV...
Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income
$100,000 income
X $60,000



$30,000
$0...
Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income
$100,000 income


$30,000
$0
$0
$30,000 ...
Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income



$30,000
$0
$0
$10,000 carryover of
F...
Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income
$2,000 cash to public charity
$56,000 FMV ...
Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
$100,000 income
X $63,000
X

$56,000
$0
$2,000 cash to public...
Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
$100,000 income
 $0
$2,000 cash to public charity
$56,000 FMV...
Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
 $0
$5,000

Holds
30%
of Income
$48k FMV
capital gain
proper...
$5,000 cash to private foundation: Deduct $0
$2,000 cash to public charity: Deduct $2,000
$56,000 FMV LT capital gain prop...
Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income
$20,000 FMV LT capital gain
property to pu...
Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
$100,000 income
X

$40,000
$20,000
$20,000

Holds
30%
of Inc...
Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
$100,000 income
 $20,000
$20,000
Holds
30%
of Income
$40,00...
Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
 $20,000
$20,000

Holds
30%
of Income

$20k FMV
capital gai...
Income
Limits
on
Charitable
Deductions
Help me
HERE
convince my bosses that continuing to build and
post these slide sets is not a waste of time. If
you work for...
If you clicked on
the link to let
me know you
reviewed these
slides…
Thank
You!
This slide set is from the curriculum for
the Graduate Certificate in Charitable
Financial Planning at Texas Tech
Universi...
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Income Limitations on Charitable Giving Deductions

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These slides are taken from the graduate financial planning course "Introduction to Charitable Planning" at Texas Tech University. Details at www.EncourageGenerosity.com

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Income Limitations on Charitable Giving Deductions

  1. 1. Income Limits on Charitable Deductions
  2. 2. All slides are taken from this book. Available from Amazon.com Full color version available at www.createspace.com/4707238
  3. 3. If you want to ask BIGyou need to ask for gifts of assets. If you ask for gifts of assets, you need to know these rules
  4. 4. We pay taxes on income
  5. 5. Charitable gifts can sometimes be deducted from taxable income, thereby reducing taxes owed
  6. 6. Charitable deductions are limited to 20%, 30%, or 50% of income depending on the gift and recipient
  7. 7. Why should we limit charitable deductions?
  8. 8. Encouraging giving is good, but at least some revenue should go to the government
  9. 9. Otherwise, wealthy people could pay zero taxes by annually transferring assets to charity
  10. 10. Taxes? Oh, no, we don’t pay taxes.
  11. 11. Why are people making such large donations, anyway?
  12. 12. Are people taking vows of poverty and giving away everything they earn?
  13. 13. Actually, the limits are an issue with gifts from assets where wealth is far greater than annual income
  14. 14. A common issue with wealthy retiree donors who have limited taxable income but large assets
  15. 15. Some gifts may be deducted up to 50% of income if given to a public charity, government, or an operating private foundation Note: The term “income” in these slides means adjusted gross income for the year of the gift excluding any net operating loss carryback
  16. 16. Public CharityAnything EXCEPT long- term capital gain or a farmer giving a qualified conservation easement 50% limit
  17. 17. 50% limit Money (given or spent performing services for the charity) Public Charity
  18. 18. 50% limit Any ordinary income property Public Charity Ex: Creations by the donor
  19. 19. Public Charity 50% limit Any ordinary income property
  20. 20. Public Charity Any ordinary income property 50% limit Short-Term Capital Gain Property (held 1 year or less)
  21. 21. Cash and ordinary income property are treated the same because they aren’t long-term capital gain property
  22. 22. 1990 Paid: $1 Current Value: $25 Long-term (>1 year) capital gain property If fair market value of gain property can be deducted, then gifting to a public charity is 30% limit If only basis of gain property can be deducted, then gifting to a public charity is 50% limit
  23. 23. 1990 Paid: $600 acre Current Value: $2,800/acre Long-term capital gain property deducted at fair market value and given to public charity 30% limit
  24. 24. 1990 Paid: $600 acre Current Value: $2,800/acre “Special election” values all long- term capital gain gifts in a year at basis, then such gifts to public charity 50% limit
  25. 25. A similar idea applies to long-term capital gain tangible personal property (All the stuff in your garage, including cars, jewelry, artwork)
  26. 26. Public Charity1990 Paid $1 Current Value: $25 50% limitlong-term capital gain tangible personal property valued at BASIS due to “unrelated use”
  27. 27. Public Charity1990 Paid $1 Current Value: $25 30% limitlong-term capital gain tangible personal property valued at FAIR MARKET VALUE due to “related use”
  28. 28. 30% limit if “for the use of” charity Concept: Money given “in trust” to another entity but charity gets current benefit 1. Paying premiums for charity- owned life insurance or 2. Charitable lead trust CLT or Insurance Company Current Benefit
  29. 29. So, that covers gifts to public charities. What’s about gifts to private foundations?
  30. 30. Anything EXCEPT long- term capital gain 30% limit Bill & Melinda Gates Private Foundation Private Foundation (non-operating)
  31. 31. 30% limit Money (given or spent performing services for the charity) Private Foundation (non-operating) Bill & Melinda Gates Private Foundation
  32. 32. 30% limit Any ordinary income property Ex: Creations by the donor Private Foundation (non-operating) Bill & Melinda Gates Private Foundation
  33. 33. 30% limit Any ordinary income property Private Foundation (non-operating) Bill & Melinda Gates Private Foundation
  34. 34. Any ordinary income property 30% limit Private Foundation (non-operating) Bill & Melinda Gates Private Foundation Short-Term Capital Gain Property (held 1 year or less)
  35. 35. 20% limit 1990 Paid $1 Current Value: $25 Bill & Melinda Gates Private Foundation Long-Term Capital Gain Property Private Foundation (non-operating)
  36. 36. 20% limit Bill & Melinda Gates Private Foundation Private Foundation (non-operating) Long-Term Capital Gain Property (including tangible personal property) Current Value: $25 1990 Paid $1
  37. 37. C-corp: limited to 10% of taxable income with 5-year carry forward. S-corp: passes through all deductions to shareholders. Corporate Giving
  38. 38. Current Value: $25 1990 Paid $1 Long-term capital gain property valued at basis “unrelated” use tangible personal property Public Charity Public Charity Anything except long-term capital gain property (e.g., cash or ordinary income property) special election
  39. 39. Current Value: $25 1990 Paid $1 “related use” tangible personal property Public Charity Private Foundation (non-operating) no special election Bill & Melinda Gates Private Foundation Long-term capital gain property valued at fair market value Anything except long-term capital gain property (e.g., cash or ordinary income property)
  40. 40. Any long-term capital gain property Current Value: $25 1990 Paid $1 Private Foundation (non-operating) Bill & Melinda Gates Private Foundation
  41. 41. What happens if you give more than the limit?
  42. 42. The excess deduction may be used later (as soon as charitable deductions do not exceed the income limits), but must be used within five years.
  43. 43. Unused charitable deductions may be carried over for up to 5 years Year 1 Charitable Deduction Maximum for Each Year Deductible in Year 1 (under limit) Not Deductible in Year 1 (over limit) Deductible Carryover Deductible Carryover Deductible Gifts Made in Year 2 Deductible Gifts Made in Year 3 Deductible Gifts Made in Year 4 Year 4Year 2 Year 3
  44. 44. Not Deductible in Year 2 (over limit) Oldest carryover deductions are used first Charitable Deduction Maximum for Each Year Deductible in Year 1 (under limit) Not Deductible in Year 1 (over limit) Deductible Carryover Deductible Carryover Deductible Gifts Made in Year 3 Deductible Gifts Made in Year 4 Deductible Gifts Made in Year 5 Deductible in Year 2 (under limit) Year 1 Year 4Year 2 Year 3 Year 5
  45. 45. What happens to a carryover deduction if I don’t itemize (i.e., just take the standard deduction)?
  46. 46. Charitable Deduction Maximum for Each Year Deductible in Year 1 (under limit) Not Deductible in Year 1 (over limit) Carryover Eliminated Deductible Carryover Potentially Deductible Gifts Made in Year 2 Deductible Gifts Made in Year 3 Deductible Gifts Made in Year 4 The carryover is reduced as if you took the maximum possible charitable deduction In year 2 no gifts were deducted because the standard deduction was used Year 1 Year 4Year 2 Year 3
  47. 47. What happens to a carryover deduction if the donor dies?
  48. 48. The carryover deduction is lost at death. For joint returns, the carryover that could have been claimed by the decedent if the couple had filed separately is lost.
  49. 49. How do the different limits work together?
  50. 50. Holds 50% of Income Holds 20% of Income Holds 30% of Income Holds 30% of Income Each limitation rule is like a glass that can only hold so much. For each glass, you must find out if the total gifts for the year of that type will fit. All gifts All gifts of LT capital gain (except “special election”) All gifts to private foundations or “for the use of” public charities All gifts of LT capital gain to private foundations
  51. 51. Holds 50% of Income Holds 20% of Income Holds 30% of Income Holds 30% of Income Any overflow in any category is carried over. Some gifts may be carried over for more than one reason (i.e., they may spill out of more than one glass). All gifts All gifts of LT capital gain (except “special election”) All gifts to private foundations or “for the use of” public charities All gifts of LT capital gain to private foundations
  52. 52. Holds 50% of Income Holds 20% of Income Holds 30% of Income Holds 30% of Income $30,000 FMV LT capital gain property to public charity $20,000 cash to private foundation $100,000 income All gifts All gifts of LT capital gain (except “special election”) All gifts to private foundations or “for the use of” public charities All gifts of LT capital gain to private foundations
  53. 53. Holds 50% of Income Holds 20% of Income Holds 30% of Income Holds 30% of Income $100,000 income  $50,000    $30,000 $20,000 $0 $30,000 FMV LT capital gain property to public charity $20,000 cash to private foundation All gifts All gifts of LT capital gain (except “special election”) All gifts to private foundations or “for the use of” public charities All gifts of LT capital gain to private foundations
  54. 54. Holds 50% of Income Holds 20% of Income Holds 30% of Income Holds 30% of Income  $50,000    $30,000 $20,000 $0 No carryover. All deductions are allowed in the current year. $100,000 income All gifts All gifts of LT capital gain (except “special election”) All gifts to private foundations or “for the use of” public charities All gifts of LT capital gain to private foundations
  55. 55. If not all gifts can be deducted (i.e., there is carry over) which gifts get deducted first?
  56. 56. Current Value: $25 1990 Paid: $1 Current Value: $25 1990 Paid: $1 Cash or ordinary income property LT capital or tangible personal property valued at basis Cash or ordinary income property LT capital or tangible personal property valued at FMV Bill & Melinda Gates Private Foundation Bill & Melinda Gates Private Foundation LT capital or tangible personal property (any)
  57. 57. Holds 50% of Income Holds 20% of Income Holds 30% of Income Holds 30% of Income $30,000 cash to public charity $30,000 FMV LT capital gain property to public charity $100,000 income All gifts All gifts of LT capital gain (except “special election”) All gifts to private foundations or “for the use of” public charities All gifts of LT capital gain to private foundations
  58. 58. Holds 50% of Income Holds 20% of Income Holds 30% of Income Holds 30% of Income $100,000 income X $60,000    $30,000 $0 $0 $30,000 cash to public charity $30,000 FMV LT capital gain property to public charity All gifts All gifts of LT capital gain (except “special election”) All gifts to private foundations or “for the use of” public charities All gifts of LT capital gain to private foundations
  59. 59. Holds 50% of Income Holds 20% of Income Holds 30% of Income Holds 30% of Income $100,000 income   $30,000 $0 $0 $30,000 cash to public charity $30,000 FMV LT capital gain property to public charity $20k FMV capital gain property $30k cash $10k FMV capital gain propertyX  All gifts All gifts of LT capital gain (except “special election”) All gifts to private foundations or “for the use of” public charities All gifts of LT capital gain to private foundations
  60. 60. Holds 50% of Income Holds 20% of Income Holds 30% of Income Holds 30% of Income    $30,000 $0 $0 $10,000 carryover of FMV capital gain charitable deduction $20k FMV capital gain property $10k FMV capital gain propertyX  All gifts All gifts of LT capital gain (except “special election”) All gifts to private foundations or “for the use of” public charities All gifts of LT capital gain to private foundations $30k cash
  61. 61. Holds 50% of Income Holds 20% of Income Holds 30% of Income Holds 30% of Income $2,000 cash to public charity $56,000 FMV LT capital gain property to public charity $5,000 cash to private foundation $100,000 income All gifts All gifts of LT capital gain (except “special election”) All gifts to private foundations or “for the use of” public charities All gifts of LT capital gain to private foundations
  62. 62. Holds 50% of Income Holds 20% of Income Holds 30% of Income $100,000 income X $63,000 X  $56,000 $0 $2,000 cash to public charity $56,000 FMV LT capital gain property to public charity $5,000 cash to private foundation $5,000  Holds 30% of Income All gifts All gifts of LT capital gain (except “special election”) All gifts to private foundations or “for the use of” public charities All gifts of LT capital gain to private foundations
  63. 63. Holds 50% of Income Holds 20% of Income Holds 30% of Income $100,000 income  $0 $2,000 cash to public charity $56,000 FMV LT capital gain property to public charity $5,000 cash to private foundation $5,000  Holds 30% of Income $48k FMV capital gain property $2k cash to public charity $8k FMV capital gain propertyX   $5k cash to private f.X $30k FMV capital gain property $26k FMV capital gain propertyX All gifts All gifts of LT capital gain (except “special election”) All gifts to private foundations or “for the use of” public charities All gifts of LT capital gain to private foundations
  64. 64. Holds 50% of Income Holds 20% of Income Holds 30% of Income  $0 $5,000  Holds 30% of Income $48k FMV capital gain property $2k cash to public charity $8k FMV capital gain propertyX   $5k cash to private f.X $30k FMV capital gain property $26k FMV capital gain propertyX  $5,000 carryover of cash to private foundations $26,000 carryover of FMV LT capital gain property (includes the $8,000 already carried over for other reasons) All gifts All gifts of LT capital gain (except “special election”) All gifts to private foundations or “for the use of” public charities All gifts of LT capital gain to private foundations
  65. 65. $5,000 cash to private foundation: Deduct $0 $2,000 cash to public charity: Deduct $2,000 $56,000 FMV LT capital gain property to public charity: Deduct $30,000 + $5,000 carryover of cash to private foundations charitable deduction + $26,000 carryover of FMV LT capital gain property charitable deduction
  66. 66. Holds 50% of Income Holds 20% of Income Holds 30% of Income Holds 30% of Income $20,000 FMV LT capital gain property to public charity $20,000 LT capital gain property to private foundation $100,000 income All gifts All gifts of LT capital gain (except “special election”) All gifts to private foundations or “for the use of” public charities All gifts of LT capital gain to private foundations
  67. 67. Holds 50% of Income Holds 20% of Income Holds 30% of Income $100,000 income X  $40,000 $20,000 $20,000  Holds 30% of Income  $20,000 FMV LT capital gain property to public charity $20,000 LT capital gain property to private foundation All gifts All gifts of LT capital gain (except “special election”) All gifts to private foundations or “for the use of” public charities All gifts of LT capital gain to private foundations $40,000
  68. 68. Holds 50% of Income Holds 20% of Income Holds 30% of Income $100,000 income  $20,000 $20,000 Holds 30% of Income $40,000 $20,000 FMV LT capital gain property to public charity $20,000 LT capital gain property to private foundation $20k FMV capital gain to public charity $10k capital gain to priv. f.  $10k capital gain to priv. f.X All gifts All gifts of LT capital gain (except “special election”) All gifts to private foundations or “for the use of” public charities All gifts of LT capital gain to private foundations
  69. 69. Holds 50% of Income Holds 20% of Income Holds 30% of Income  $20,000 $20,000  Holds 30% of Income  $20k FMV capital gain to public charity $10k capital gain to priv. f.  $10k capital gain to priv. f.X $10,000 carryover of capital gain property given to a private foundation All gifts All gifts of LT capital gain (except “special election”) All gifts to private foundations or “for the use of” public charities All gifts of LT capital gain to private foundations $40,000
  70. 70. Income Limits on Charitable Deductions
  71. 71. Help me HERE convince my bosses that continuing to build and post these slide sets is not a waste of time. If you work for a nonprofit or advise donors and you reviewed these slides, please let me know by clicking
  72. 72. If you clicked on the link to let me know you reviewed these slides… Thank You!
  73. 73. This slide set is from the curriculum for the Graduate Certificate in Charitable Financial Planning at Texas Tech University, home to the nation’s largest graduate program in personal financial planning. To find out more about the online Graduate Certificate in Charitable Financial Planning go to www.EncourageGenerosity.com To find out more about the M.S. or Ph.D. in personal financial planning at Texas Tech University, go to www.depts.ttu.edu/pfp/ Graduate Studies in Charitable Financial Planning at Texas Tech University

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