By Jon Tidd
Sometimes a charitable gift is too large to be fully deductible for the year in which it’s made. This is because the law imposes limits on the federal income tax charitable deduction. In this situation, the donor may be able to carry the excess part of the gift forward as a deduction for up to five years.
For example, Donor’s 2016 adjusted gross income (AGI) is $150,000. Donor’s maximum federal income tax charitable deduction for 2016 is $75,000 (50% of AGI). Donor’s 2016 cash donations can be deducted up to this limit, provided the donations are all made to “public charities” (such as schools, colleges, religious organizations and hospitals). Any cash donations Donor makes in 2016 to private foundations are subject to a lower limit of $45,000 (30% of AGI). Appreciated stock gifts to “public charities” are also subject to a 30% limit on deductibility. Appreciated stock gifts to private foundations are subject to a 20% limit on deductibility. These appreciated stock limits apply to stock held long-term (at least a year and a day).
Excess gifts to “public charities” are subject to a five-year carryover rule. So, for example, if the donor we’ve been considering gives $60,000 in cash and $20,000 in appreciated long-term stock to “public charities” in 2016, he or she is limited to a $75,000 charitable deduction for 2016. The cash gifts of $60,000 are taken into account first and are fully deductible for 2016. The stock gifts, taken into account second, are deductible only to the extent of $15,000, so there is a $5,000 appreciated stock carryover to 2017, subject to the 30% limitation. No carryover is allowed for excess gifts to private foundations.
For 2017, Donor will first take into account 2017 cash donations to “public charities;” will take into account second any 2017 appreciated stock donations to “public charities;” will take into account third any cash carryover from a prior year; then will take into account appreciated stock carryovers from prior years, including the $5,000 carryover from 2016.
If your head is spinning at this point, it should be. And we’ve just scratched the surface of the carryover rules. If you have questions about these rules, be sure to contact a Sharpe Group representative.
Why can’t you just give a simple example. Just AGI and cash to qualified chartist. Don’t explain what qualified charities until the example is given. Here’s what you should have done:
Year X AGI is 100K Donations are 60K, deduct 50K, carry over 10K
Year X+1 AGI is 100IK Donations are 45K, can deduct 50K, carry over 5K
Then you can talk about other stuff like stocks, 5 year rule, etc.