The limits on federal income tax charitable deductions are quite high, but they do exist. Keep this in mind as you make any year-end donations. The specific limitations are complicated, and there are numerous exceptions. The limits are based on your AGI (adjusted gross income). AGI is an individual’s total gross income minus specific deductions.
A quick rule-of-thumb for different types of donated assets to public charities:
- You can deduct appreciated capital gains assets, such as stock, up to 20% of AGI.
- You can deduct non-cash assets, such as real estate, up to 30% of AGI.
- You can deduct cash contributions up to 50% of AGI.
Note that these rates are for public tax-exempt organization and private operating foundations. Contributions to certain private foundations, veterans organizations, fraternal societies, and cemetery organizations are limited to 30% adjusted gross income. (Check out these IRS status codes and deductible limits if you’re unsure of an organization’s limit.)
Most people won’t exceed these limits indicated above, but it can happen. For instance, if Jane Donor is a retiree living off of savings and donates more than her investments yield over the year, her limit could be exceeded. The good news is that in this case the IRS allows you carry over excess contributions for up to five following tax years.