Q My husband and I normally make our charitable contributions at the end of the year. We are careful to postmark the envelopes that contain our checks to the charities before the end of the year. We also keep these canceled checks to prove we make the charitable contributions that we deduct on our federal income tax return.
My husband and I recently heard that we must now also obtain receipts from the charities in order to obtain a deduction for these charitable contributions. Could you please explain these new requirements?
A Beginning in 1994, a canceled check alone will not be considered sufficient evidence of a gift of more than $250 to a charity. The new rule requires that a donor of $250 or more must also obtain a contemporaneous written acknowledgement of the gift from the charity.
The person claiming the contribution must obtain the acknowledgement from the charity before the earlier date or the date he or she files a tax return for the year in which the contribution was made or the actual due date (including extensions) for filing the tax return. If the written acknowledgement is obtained at a later date, the deduction for the gift will be lost.
The charity's acknowledgement must include the amount of the cash and a description (but not the value) of any property other than cash contributed and whether the charity provided any goods or services in return for any of the property contributed.
Q My husband and I also contribute each week to our church to help with its operating budget. While these separate weekly contributions do not exceed $250, our annual giving to our church does exceed $250. Will we also need to obtain a written receipt from the church?
A Separate contributions of less than $250 generally are not aggregated for purposes of the $250 contribution acknowledgement rule. Thus, weekly contributions to your church generally will not be totaled to meet the $250 limit. However, this exception does not apply to situations where multiple checks are written on the same day.
Q My husband and I also want to contribute to a research organization which is hosting a banquet for a renowned scientist to explain the progress he is making in finding a cure for a disease. Will my husband and I be allowed to deduct the full amount of our charitable contribution? If not, how much of our charitable contribution will be deductible?
A Beginning this year, a charitable organization that receives a payment in excess of $75, which is made partly in consideration for goods or services received from the charity, must provide a written statement to the donor. The statement must tell the donor the amount of the payment that is deductible, and contain a good faith estimate of the value of the goods or services furnished by the charity. An example is if you pay $175 to a charity and in return receive two banquet tickets that are worth a total of $75. The charity must provide you notice of this fact and inform you that only $100 is deductible. This provision does not apply if goods or services of insubstantial value are given by the charity.
Q Are there any limits to how much of a charitable contribution can be deducted on my federal income tax return?
A A donor can deduct cash contributions to churches, schools, hospitals or publicly supported organizations equal to 50 percent of his or her adjusted gross income. A person who donates securities or real estate owned for more than a year to such a charitable organization can deduct the fair market value of such property equal to 30 percent of his or her adjusted gross income in any year. It is important to remember there is no capital gain tax to pay on the difference between the cost basis and the fair market value when the gift is made. The donor may elect to increase his or her income tax deduction for securities or real estate equal to or up to 50 percent of adjusted gross income if the donor only deducts the gift at his or her cost basis.
A gift of real estate or securities owned less than one year can be deducted equal to 50 percent of the donor's adjusted income, but the donor cannot deduct the fair market value of the gift. Instead, the deduction is limited to the donor's cost basis.
A donor can carry over any excess contribution of cash, securities or real estate that cannot be deducted in the year of the gift. The donor can deduct the excess against the donor's annual adjusted gross income for the next five years.
Because of the increasing complexity of the charitable contribution rules, it is important to consult with your certified public accountant or your attorney.
Gregory G. Gay is an attorney in Pasco County who specializes in elder law. Brian C. Sparks of the law firm of Holland & Knight contributed to this article. You can write to Gay c/o Seniority, the Times, P.O. Box 1121, St. Petersburg, 33731.