When it comes to giving away property for tax deductions, it’s important to take advantage of what the tax code allows. Today I’m going to go over a couple things to be aware of when donating money or assets for a tax deduction.
First, in order to be deductible, the donation must be made in cash or property.
It must also be given to a qualified charity as defined by the IRS. You can find out more about qualified charities by checking out IRS publication number 78. The property or cash contribution must be made before the close of your tax year to be deductible.
One thing that’s important to be aware of is to avoid giving away property or assets that have gone down in value. If you do this, you won’t be able to take advantage of the loss. A better approach would be first sell the asset to generate a realized loss, then give away the cash to the charity. This way you’ll have a realized loss to deduct as well as a charitable contribution deduction. Plus, the charity still gets the same amount. Who says you can’t have your cake and eat it too?!
However, it is the opposite with appreciated property. You DON’T want to sell appreciated property first because you’ll be taxed on the realized gain. Instead give the appreciated property away to the charitable organization because they will owe no tax on the sale of the asset. If set up properly, a full deduction can be taken for the full market value of the donated property while tax on the appreciation is avoided.
In this blog I have given you some general rules on charitable giving. However, keep in mind there are income percentage limitations that cannot be exceeded for deductions as well as special rules for long term capital gain property. Thank you for reading.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.