What are the limits to the contribution deduction?
There are certain limits, or ceilings, to the total amount of money you can claim as a charitable donation deduction. However, this only applies when you have donated a substantial amount of money in relation to your earning. For example, if your total contributions for the year are less than 20% of your adjusted gross income, you do not need to worry about these limits. This means that, if your adjusted gross income in 2005 was $50,000, you would only have to worry about these ceilings if you contributed more than $10,000.
There are certain qualified organizations that are known as “50% limit organizations.” These 50% limit organizations include many churches, publicly supported charities, hospitals, schools, government entities, etc. For any cash contributions to such 50% limit organizations, you can only deduct an amount up to 50% of your adjusted gross income (in the above example, this would only come into play if you gave more than $25,000 in cash contributions to such 50% limit organizations). The easiest way to find out if a qualified organization is a 50% limited organization is to ask them - most should know the answer to your inquiry.
If you make a cash contribution to a qualified organization that is not a 50% limit organization (such as a fraternal society or a veterans’ organization), you are more limited in what you may claim - you can only claim a cash contribution up to 30% of your adjusted gross income.
The same standards apply for donations of property rather than cash contributions, except that the amounts are different. For 50% limit organizations, you can only deduct donated property up to 30% of your adjusted gross income, and for non-50% limit organization, you can only deduct donated property up to 30% of your adjusted gross income (unless it was capital gain property held long term, in which case you can only deduct 20%).
If you have contributed enough that these limits come into play, and cannot claim the full amount of your contribution, you can carryover the excess contribution for up to five years. For example, if you are over the limit this year but under the limit next year, you can add this year’s excess to next year’s returns.
For more information on all of these issues, you can see IRS Publication 526, entitled “Charitable Contributions,” for more information.
Finally, in addition to the specific limits to charitable contributions, if your adjusted gross income is above a certain amount, your contributions are also subject to the 2% reduction.