Planning to Deduct Charitable Contributions? Tax Reform May Change That
Although the Tax Cuts and Jobs Act didn’t change the rules for deducting or documenting charitable donations, the higher standard deduction means that many taxpayers who used to itemize may not be able to itemize for the 2018 tax year and beyond. While a donation is potentially deductible, as with prior law, you will receive no tax benefit from the value of the charitable giving with tax reform unless the total of your itemized deductions exceeds the standard deduction.
For example, suppose you are single, and all of your itemized deductions in 2018 total $9,000, including $2,000 in charitable donations. Because the standard deduction for single taxpayers is $12,000, it would not benefit you to itemize your deductions, and thus the charitable donation has no tax value.
Of course, the organization receiving your donation will value it and giving does good and feels good. Whether you’re a philanthropist or an occasional donor, you’ve likely made a gift because you want to make a difference.
For Those Who Will Continue to Itemize: Large Gift Deduction Rules
If the amount you can claim because your itemized deductions turn out to be higher than the standard deduction, then you’ll want to understand the rules for deducting and documenting your charitable giving.
Let’s take a look at how large donations—those cash contributions of $250 or more, and noncash donations over $500—are organized, and how tax reform may impact your larger charitable contributions.
Philanthropic Giving: Large Donations
The IRS places large gift donations into three categories:
- Cash contributions of $250 or more
- Noncash donations over $500 but not over $5,000
- Noncash contributions over $5,000
Written acknowledgement and record of your deductible gifts to an organization needs to be kept with your tax returns, even with the latest tax reform rules on charitable giving.
For Monetary Donations of $250 Or More
If you want to claim a gift deduction for a lump sum contribution of $250 or more, you must have an acknowledgment of the contribution from the qualified organization. The acknowledgement of your gift donation must meet these criteria:
- It must be written.
- It must include all of the following:
- The amount of cash contributed,
- Whether the qualified organization gave any goods or services (other than token items or memberships) as a result
- A description and good faith estimate of the value of any goods and services described in (b), and
- If applicable, a statement that the only benefit you received was an intangible religious benefit.
- It must be received on or before:
- The date the tax return is filed for the year in which the contribution is made, or
- The due date, including extensions, for filing the return.
Charitable Gift for Noncash Donations Over $500 (But Not Over $5,000)
If you claim a gift deduction over $500 for a noncash donation, you must report information about the gift donation on a Form 8283. This is also true with the latest tax reform for large charitable contributions.
You’ll also need a written acknowledgement, and your written records must also include:
- How you acquired the donated property – purchase, gift, or inheritance.
- The approximate date you acquired donated property – or approximate date the property was completed if it was created, produced, or manufactured.
- The cost, or other basis, and any adjustments to the basis, of property held fewer than 12 months. This requirement doesn’t apply to publicly traded securities.
Charitable Gift for Noncash Donations Over $5,000
If your noncash single charitable donation for one item or a group of similar items is more than $5,000,
- The organization must give you a written acknowledgement,
- You must keep the records required under the rules for noncash donations over $500 but less than $5,000, and
- In most instances, you must obtain a qualified written appraisal of the donated property from a qualified appraiser. A written appraisal is not required for a donation of publicly traded stock.
There’s a specific way to calculate whether a noncash deduction is over $5,000. This specific calculation has also stayed the same for very large charitable giving with tax reform. You need to combine all gift deductions for similar items you donated to all organizations during the year. This usually means you will have to get a qualified appraisal of all donated property. You must also complete and file Form 8283.
Looking for More About Charitable Contributions and Tax Reform for Your Situation?
The experts at H&R Block can look at your personal situation and help you determine what gifts are deductible and how to claim them, even with the impact of tax reform on charitable giving. Visit your local H&R Block tax office and one of our knowledgeable tax pros can help.
Learn about IRS direct debit installment agreements (DDIA), which can get you a lower user fee. Get the facts from the tax experts at H&R Block.
Learn about the consequences you can face if you lie on your tax return. Get the facts from the tax experts at H&R Block.
The IRS intends to terminate your installment agreement. Learn more about IRs letter 2975 and how to address it with help from the tax experts at H&R Block.
Didn't get your expected tax refund? Learn about six possible reasons for this unexpected change from the tax experts at H&R Block.