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Internal Revenue Service Tax Information

IRS Publication 526: Charitable Contributions

This excerpted information is provided to you only as a courtesy. The complete text of this federal publication is available online at http://www.irs.ustreas.gov/

The Pacific Marine Foundation strongly suggests that you seek qualified legal and financial advice, especially regarding the donation of all property you believe to be of greater than $5,000.00 value. We have included our notes regarding changes made to the tax law as of January 1, 2005, which govern the amount of the allowable deduction from your property donation.

We encourage you to review the following information with your tax advisor to determine whether it is applicable to your individual situation.

Introduction

This publication discusses organizations that are qualified to receive deductible charitable contributions, the types of contributions you can deduct, how much you can deduct, what records to keep, and how to report charitable contributions. A charitable contribution is a donation or gift to, or for the use of, a qualified organization. It is voluntary and is made without getting, or expecting to get, anything of equal value.

Qualified organizations

Qualified organizations include nonprofit groups that are religious, charitable, educational, scientific, or literary in purpose, or that work to prevent cruelty to children or animals. You will find descriptions of these organizations below.

Organizations That Qualify To Receive Deductible Contributions

You can ask any organization whether it is a qualified organization, and most will be able to tell you. Or, you can check IRS Publication 78 which lists most qualified organizations.

Types of Qualified Organizations

Generally, only the five following types of organizations can be qualified organizations:

A community chest, corporation, trust, fund, or foundation organized or created in or under the laws of the United States, any state, the District of Columbia, or any possession of the United States (including Puerto Rico). It must be organized and operated only for:

  • Religious
  • Charitable
  • Educational
  • Scientific, or
  • Literary purposes, or
  • For the prevention of cruelty to children or animal

You Can Deduct

Generally, you can deduct your contributions of money or property that you make to, or for the use of, a qualified organization. A gift or contribution is "for the use of" a qualified organization when it is held in a legally enforceable trust for the qualified organization or in a similar legal arrangement. The contributions must be made to a qualified organization and not set aside for use by a specific person.

If you give property to a qualified organization, you generally can deduct the fair market value of the property at the time of the contribution. * (See note below)

Your deduction for charitable contributions is generally limited to 50% of your adjusted gross income.

(NOTE: Current rules restrict the deduction to the donor to the actual gross proceeds received by the qualified organization upon sale of the donated item. If, however, the donated item is held and used by the qualified organization for at least three years, the allowable deduction is the fair market value of the property at the time of the contribution.)

Determining Fair Market Value

This section discusses general guidelines for determining the fair market value of various types of donated property. Fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.

Cars, boats, and aircraft

If you contribute a car, boat, or aircraft to a charitable organization, you must determine its fair market value. Certain commercial firms and trade organizations publish guides, commonly called "blue books," containing complete dealer sale prices or dealer average prices for recent model years. The guides may be published monthly or seasonally, and for different regions of the country. These guides also provide estimates for adjusting for unusual equipment, unusual mileage, and physical condition. The prices are not "official" and these publications are not considered an appraisal of any specific donated property. But they do provide clues for making an appraisal and suggest relative prices for comparison with current sales and offerings in your area. These publications are sometimes available from public libraries or from the loan officer at a bank, credit union, or finance company. Except for inexpensive small boats, the valuation of boats should be based on an appraisal by a marine surveyor because the physical condition is critical to the value.

Bargain Sales

A bargain sale of property to a qualified organization (a sale or exchange for less than the property's fair market value) is partly a charitable contribution and partly a sale or exchange.

Part that is a sale or exchange

The part of the bargain sale that is a sale or exchange may result in a taxable gain. For more information on determining the amount of an taxable gain, see Bargain Sales as Gifts in chapter 1 of Publication 544.

Part that is a charitable contribution

Figure the amount of your charitable contribution in three steps.

  • Step 1. Subtract the amount you received for the property from the property's fair market value at the time of sale. This gives you the fair market value of the contributed part.

  • Step 2. Find the adjusted basis of the contributed part. It equals:

    • Adjusted basis of entire property
    • Fair market value of contributed part
    • Fair market value of entire property

  • Step 3. Determine whether the amount of your charitable contribution is the fair market value of the contributed part (which you found in Step 1) or the adjusted basis of the contributed part (which you found in Step 2). Generally, if the property sold was capital gain property, your charitable contribution is the fair market value of the contributed part. If it was ordinary income property, your charitable contribution is the adjusted basis of the contributed part. See the ordinary income property and capital gain property rules (discussed earlier) for more information.

When To Deduct

You can deduct your contributions only in the year you actually make them in cash or other property (or in a succeeding carryover year, as explained below).

The 50% limit applies to the total of all charitable contributions you make during the year. This means that your deduction for charitable contributions cannot be more than 50% of your adjusted gross income for the year.

Only limit for 50% organizations

The 50% limit is the only limit that applies to gifts to organizations listed below under 50% Limit Organizations.

50% Limit Organizations

You can ask any organization whether it is a 50% limit organization, and most will be able to tell you. Or you may check IRS Publication 78 (described earlier). Only the following types of organizations are 50% limit organizations.

  • Corporations, trusts, or community chests, funds, or foundations organized and operated only for charitable, religious, educational, scientific, or literary purposes, or to prevent cruelty to children or animals, or to foster certain national or international amateur sports competition. These organizations must be "publicly supported," which means they normally must receive a substantial part of their support, other than income from their exempt activities, from direct or indirect contributions from the general public or from governmental units.

Carryovers

You can carry over your contributions that you are not able to deduct in the current year because they exceed your adjusted gross income limits. You can deduct the excess in each of the next 5 years until it is used up, but not beyond that time. Your total contributions deduction for the year to which you carry your contributions cannot exceed 50% of your adjusted gross income for that year.

Noncash Contributions

For a contribution not made in cash, the records you must keep depend on whether your deduction for the contribution is:

  • Less than $250,
  • At least $250 but not more than $500,
  • Over $500 but not more than $5,000, or
  • Over $5,000.

Deductions Over $500: But Not Over $5,000

If you claim a deduction over $500 but not over $5,000 for a noncash charitable contribution, you must have the acknowledgement and written records described [below].

Your records must also include:

  • How you got the property, for example, by purchase, gift, bequest, inheritance, or exchange.

  • The approximate date you got the property or, if created, produced, or manufactured by or for you, the approximate date the property was substantially completed.

  • The cost or other basis, and any adjustments to the basis, of property held less than 12 months and, if available, the cost or other basis of property held 12 months or more.

Deductions Over $5,000

If you claim a deduction of over $5,000 for a charitable contribution of one property item or a group of similar property items, you must have the acknowledgement and the written records described under Deductions Over $500 But Not Over $5,000. In figuring whether your deduction is over $5,000, combine your claimed deductions for all similar items donated to any charitable organization during the year. Generally, you must also obtain a qualified written appraisal of the donated property from a qualified appraiser.

[This information was excerpted and edited from IRS Publication 526, rev. 11/96; Charitable Contributions.]

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