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Giving To Charities – Tax Deductions and Such

The tax code in the United States contains many provisions to promote certain behavior. One area of behavior is the promotion of giving to qualified charities.

tax deductions, charity, 501c3, irs, taxes, donate, donating, donations, 2005, politics, tax code

The tax code in the United States contains many provisions to promote certain behavior. One area of behavior is the promotion of giving to qualified charities.

Giving To Charities – Tax Deductions and Such

In the rush to get tax returns prepared and filed, many people absentmindedly forget to include deductions for contributions to charities. If you itemize deductions on your tax return, this can be an expensive omission.

Pursuant to relevant provisions of the tax code, you can take significant deductions if you donate money or goods to a qualified charity. A qualified charity is one that is registered with the IRS as a 501c3 entity. The 501 designation refers to the relevant section of the tax code.

Importantly, not all charitable organizations are qualified with the IRS. You can go to the IRS web site and search through a list to see if a particular group is included. If they are not, red flags should go be raised.

Before claiming your deduction for donations, there are a couple of things to keep in mind:

1. Politics – You may feel strongly about certain political ideologies, issues or candidates. You can contribute to the causes, but you can’t deduct the contributions as charitable giving.

2. You can only deduct contributions actually made for the year in question. If you forgot to claim donations on your tax return for the 2004 year, you cannot claim them on a 2005 return. Instead, you should go back and amend the 2004 return.

3. If you make a contribution for a good or service, you can only deduct the amount you contribute which is in excess of the fair market value of the good or service. For instance, many charitable groups will hold auctions to raise money. If your winning bid for a two night hotel stay is $800, you can claim a deduction for the bid amount minus the normal cost. You cannot just write off $800.

4. In general, donations of stock or property should assigned the fair market value, not an arbitrary figure based on your opinion. Big ticket items should be supported with an appraisal.

5. The rules for donating automobiles have changed. The charitable group should have sent you correspondence regarding the amount it was able to sell the vehicle for. This is the amount you can deduct, not the blue book amount previously allowed. If the charity has not sent you anything, call them to get written confirmation. They know it has to be done under new IRS regulations.

Donating to charities is positive moral step. Make sure to claim your deductions to reap savings on your taxes.


How To Make A Sizable Charitable Donation From Your IRA—Tax Free

If you are over 70 ½ years old, want to make a gift for a special charitable project, but your only liquid asset is your IRA, I have good news for you.

On August 17, 2006 the Pension Protection Act of 2006 (PPA 2006) was signed into law. This nearly 1,000 page piece of legislation marked the most sweeping changes to the pension arena in 30 years.

Let me give you two common examples that contain problems faced by seniors solved by PPA 2006…

Roger and Claire are retire...

charitable donation, donation, charity, planned giving, IRA, Pension Protection Act, PPA 2006, RMD

If you are over 70 ½ years old, want to make a gift for a special charitable project, but your only liquid asset is your IRA, I have good news for you.

On August 17, 2006 the Pension Protection Act of 2006 (PPA 2006) was signed into law. This nearly 1,000 page piece of legislation marked the most sweeping changes to the pension arena in 30 years.

Let me give you two common examples that contain problems faced by seniors solved by PPA 2006…

Roger and Claire are retired. Roger spent his working career in the aerospace industry. He was more than well compensated and over the years accumulated a very large 401(k) plan. The plan grew nearly 500% during one 5 year bull market. When he retired, he rolled his 401(k) into an IRA. Other than their home, the IRA is far and away their biggest asset.

For years, Roger and Claire have been supporters of the Humane Society. Their local chapter is building an entire new wing on to their kennels. Roger and Claire would love to make a significant donation—somewhere in the neighborhood of $50,000 to $100,000.

Bill and Diane both worked during their entire careers. Mary taught 6th grade for 40 years. Bill was a career military officer. After his retirement, he spent another 20 years working in the private sector. Bill and Diane have more retirement plans than Carter has pills. Like Roger, Bill has a large IRA.

When Bill turned 70 ½, he was required to start taking the minimum required distributions each year from his IRA. But Bill and Diane don’t need the income; their other retirement income sources are more than adequate. Nevertheless, Bill must take these RMDs and pay tax on them as income.

Bill and Diane have been active in their church all their married life, all 45 years of it. Their church just bought a new organ. It was a purchase of necessity inasmuch as the old (very old) organ was becoming hazardous to play. The organist had to be careful or the organ would start to smoke. So, needless to say, the church did not pay cash for the organ; the majority of it was financed. Bill and Diane would like to pay off the organ.

Both Roger and Claire and Bill and Diane are warm-hearted people. Their devotion to charitable causes and their church is representative of the many people who support charitable organizations which reach out to help people.

But, prior to the passage of PPA 2006, their generosity could have been thwarted by several things…

1. In both cases, their principal liquid asset was an IRA. Neither couple had other assets from which to make a gift.

2. If the large sums were withdrawn from their IRAs, they would be subject to ordinary income tax.

3. If given to a charity, rules which limit the amount that could be deducted as a charitable contribution would have to be followed. This means that they may still have to pay tax on a portion of their IRA withdrawals.

But thanks to provisions in PPA 2006, Roger and Claire can make their gift to the Humane Society and Bill and Diane can pay off their church’s new organ using money from their IRAs and not pay any tax on the withdrawals. But they have to follow the rules…

1. First, you must be at least 70 ½.

2. You can give up to $100,000.

3. This only applies to 2006 and 2007.

4. You can’t withdraw the money from your IRA and then give it to your charitable cause. The transfer must be made directly from the custodian of the IRA to the charity.

5. These gifts, called IRA charitable rollovers, count towards your required minimum distribution for the year.

6. IRA charitable rollovers are not permitted for gifts to donor advised funds and supporting organizations. However, there are some exceptions that apply to funds held by community foundations: scholarship, field of interest, and designated funds qualify. So the first step is to contact your intended cause to see how they are classified and whether or not the law allows an IRA charitable rollover gift.

7. The gift must be a pure gift. In other words, there can’t be any personal benefit strings attached like tickets to an event.

8. You don’t have to report the IRA charitable rollover as income.

9. However, you don’t get a charitable deduction for your gift. Sorry, you can’t have your cake and eat it too.

This new law is a real winner. In these two examples, the Humane Society is able to build new kennels and a church pays off an organ they thought they were going to have to finance. The donors were able to make it happen despite the fact that the only real asset they had was an IRA. I hope this law is extended beyond 2007.

But like anything new, the name of the game is to communicate what is possible. The law was put into effect in late August 2006, so that didn’t leave a lot of time for IRA charitable rollovers that year. If you, or anyone you know, has an IRA and would like to make a gift, make them aware of this new option. If you are involved in a public charity, help their planned giving officer get the word out.

I do not dispense tax advice. It is imperative that you consult with your tax advisor and the charity to make sure it is qualified and that the gift is made in the proper manner.


What are the Tax Benefits of Donating Real Estate To A Church Or Charity?

Rules for donating real estatle for tax deductions

donations, real estate donations, unwanted property, investment real estate, real estate, property donation

Copyright 2006 National Real Estate Network LLC

Most people think that donating real estate to a charity is for the rich. This simply is not true. I have worked with individuals, charities, and small corporations for years with the donations process. For many people and companies is about the able to rid themselves of unwanted property. They simply want out. They are tired of property taxes, insurance costs and the liability exposure.

The following are the rules that apply for real estate donation:


The following rules apply if the donated property is owned in your own name, with your spouse or other persons: If you have held the property for more than one year, it is classified as long-term capital gain property. You can deduct the full fair market value of the donated property. Your charitable contribution deduction is limited to thirty percent (30.00%) of your adjusted gross income.

Excess contribution value may be carried forward for up to five years. If the property has been depreciated, the fair market value must be reduced by its accumulated depreciation through the date of contribution. Fair market value is most commonly determined by an independent appraisal.

If you elect to deduct your cost basis of the donated property you are allowed a deduction of fifty percent (50.00%) of your adjusted gross income. Excesses here again can be carried forward up to five years. Which method you elect is dependent on the cost basis in the property donated, your tax bracket, the age and health of the donor and whether you plan to make future contributions. Corporate Donors

The following rules apply if a corporation makes your contribution, these rules apply:

If you have a controlling interest in the corporation and the property has been held for more than one year, the corporation can deduct up to ten percent (10.00%) of the net profit of the corporation. Excess contribution amounts can be carried forward up to five years. The fair market value here must be reduced by the amount of accumulate depreciation. If the corporate has elected "Subchapter S" status, then the contribution allowed will be reported on the individual shareholders K1 and may be deducted on the individual return. Partnerships, S-Corporations and Limited Liability Companies

The following rules apply if a partnership, S-Corporation or limited liability company is making your contribution:

The corporation may not claim a deduction for the property donated. Rather, the contribution passes to the individual shareholders on a pro-rated based on their percent ownership in the S corporation. The shareholder can claim this deduction on their individual tax return. The same limits and carry forward rules will apply.

Partnerships and limited liability company contribution rules are the same as an S corporation with one exception the partners or member can claim a deduction even if they have no basis in the partnership or limited liability company.

Real estate investing by nature is risky. You can win, lose, or break even. We cannot guarantee a profit or loss. We do not provide legal, accounting, or contracting advice.

* Please consult your CPA/Attorney for your specific tax benefit.


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