By: Laurie W. Valentine- COO and Trust Counsel
Here is a quick review of the basic rules regarding the deductibility of gifts made to charity.
First, to be deductible the transfer must be a gift to charity. At a minimum, the IRS requires what you give have a value that exceeds any benefit you receive in return. If you receive some thing or benefit when you make your gift your deduction is limited to the difference between the value of what you give and the value of what you receive.
If you receive or expect to receive a bargained-for benefit, you are not entitled to a charitable income tax deduction, no matter how the transaction is styled.
The gift must be to charity. A gift to charity earmarked by the giver for a particular individual is not deductible, if the giver’s primary intention was to benefit a particular individual, rather than advance the mission of the charity. The test for deductibility is whether the charity has full control and discretion over the gifted funds and their use. Even if the charity’s governing documents state the charity’s governing body will decide how all contributions will be used, a deduction will be denied if it is determined the charity lacked full control over a particular gift.
Gifts must be completed by December 31 to be deductible in that tax year.
Cash gifts are completed if the check is dated December 31 or earlier and delivered to the charity, or placed in the mail with appropriate postage, by December 31. Gifts of securities are completed when properly endorsed stock or bond certificates are delivered to the charity (or placed in the mail with appropriate postage), or when the securities are received into the charity’s brokerage account, or when the security is retitled on the books of the issuing company, whichever occurs first. Real estate gifts are completed when a properly executed deed is delivered to the charity.
There are percentage limitations on the amount of charitable gifts you can deduct in a single year. If the amount of your charitable gifts in one tax year exceeds the percentage limits, you are permitted to carry the unused portion of the deduction forward and use the balance over the next 5 tax years.
Contributions of services to charity and allowing a charity to use your property rent-free are not deductible “gifts”.