What is a Charitable Deduction? The charitable contributions deduction reduces taxable income, allowing individual taxpayers and businesses to deduct cash and property contributions to qualified charities. The amount that can be deducted in a year is subject to limits depending on the type of donation and how you file your taxes.
Key Recommendations
The charitable contributions deduction allows taxpayers to deduct cash and property contributions to qualified charities.
There are annual caps that limit the total amount of deductions for charitable contributions.
In 2020 and 2021 the annual cap on cash contributions has been increased.
Taxpayers who do not itemize deductions will be able to deduct up to $300 of cash contributions in addition to the standard deduction claim in 2020 and 2021.
How the Charitable Contributions Deduction Works
Donations made to a qualified charity are deductible for taxpayers who itemize their deductions, within certain limits. Generally, for cash contributions made between 2018 and 2025, the amount that can be deducted is limited to a maximum of 60% of the taxpayer's taxable adjusted gross income (AGI). For fiscal years 2020 (thanks to the CARES Act) and 2021 (thanks to the Consolidated Loan Act), the 60% AGI limit has been raised to 100%.
Other types of contributions may be limited to 50%, 30%, or 20% of AGI, depending on the type of property and the organization receiving the donation. For example, gifts of property for capital gains, such as valued stock, are limited to 30% of AGI.
Under the CARES Act, taxpayers don't itemize their deductions and take the standard deduction instead they are also allowed a deduction of up to $300 for charitable contributions in 2020. The Consolidation Loan Act extended this deduction through 2021. Married couples who file joint returns and do not itemize can deduct up to $600 of gifts in 2021.
Charitable contributions for taxpayers who itemize their deductions must be listed on Schedule A of Form 1040. Taxpayers who do not itemize deductions can deduct up to $300 for tax years 2020 and 2021; for 2020 it was allowed as “above deductible line”.
If you can't deduct all of your charitable donations in a year because you've reached the percentage limit, you can defer them for up to five years, after which they expire and you can no longer use them.
Qualified Charities
In order to deduct charitable contributions, the receiving charity must be a qualified organization in the eyes of the IRS. According to the IRS, acceptable charities include:
- A trust, community fund, or foundation established in the United States that is administered solely for scientific, religious, charitable, or literary purposes.
- An American organization developed to prevent cruelty to animals or children.
- A synagogue, mosque, church, or other religious organization
- A volunteer, non-profit fire company
- An organization of war veterans.
- A civil defense organization established pursuant to local, state, or federal law, including unreimbursed expenses of civil defense volunteers that are directly related to their volunteer services.
- A sister corporation that operates on a cottage system, but the donation is deductible only if used for Community or other charitable purposes.
- A nonprofit cemetery, but only if the funds are used to care for the entire cemetery versus a particular headstone, mausoleum, crypt, or other mark.