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Charitable Tax Deduction Rules

Deductibility of Charitable Gifts

If you itemize your deductions, making charitable gifts can play a significant role in reducing taxable income. However, there are rules which may limit your charitable deduction in a particular year. The American Taxpayer Relief Act of 2012 caps the itemized deductions for individuals earning more than $250,000 and married couples earning more than $300,000.

Cash gifts can be deducted up to 50% of adjusted gross income. Any excess may be carried over for five additional years until completely used.

Gifts of appreciated assets, such as securities and real estate (which have been held for longer than one year), can be deducted at full fair market value up to 30% of adjusted gross income. If the gift is made outright to charity, then the entire capital gain on the asset is avoided. Gifts that return income may have some capital gains ramifications. NOTE: The deduction for gifts of appreciated assets held for one year or less may be limited to your cost basis in the asset.

Gifts of tangible personal property, such as works of art or jewelry, can be deducted in an amount equal to 30% of your adjusted gross income. In order to claim a full fair market value deduction, those assets must be used in a manner that is related to the charity's exempt purpose. If this use of the asset is not related to the charity’s exempt purpose, you may only deduct your cost basis.

Income Taxes

The current federal income tax rates range from 10% all the way to 39.6%. State income rates are in addition to these federal rates.

Capital Gains Taxes

Generally, for investment assets held for longer than one year, the federal capital gains tax rates range from 0 to 20% depending on the regular tax bracket of the donor. State capital gains taxes are in addition to any federal taxes. For investment income above $200,000 (or $250,000 for a couple), there is an additional 3.8% Affordable Care Act tax.