question.jpgIn Federal Income Tax

How much of my Katrina donations can I deduct?

The Katrina Emergency Tax Relief Act of 2005 changed the amount of certain charitable donations which can be claimed as deductions. This change is explained below, although it is worth noting that it will not apply to most people, as the limit for charitable deduction only applies for substantial donation amounts.

Normally, you can only deduct a maximum of 50% of your total adjusted gross income (your “AGI”). However, this was changed somewhat by the Katrina Emergency Tax Relief Act of 2005 - now, for any cash donations made between August 28, 2005 and December 31, 2005 to any public charities, governmental bodies or certain private foundations, you can deduct those contributions up to an amount equal to the amount your AGI exceeds any other donations. However, these donations do not have to be specifically connected to Hurricane Katrina relief - they simply must be cash contributions, must have been made after August 27, 2005 and must have gone to an applicable entity.

Here’s an example to help explain this change. Let’s assume that your AGI for 2005 was $100,000, and that you made three charitable donations totaling $60,000: (i) on June 1, 2005, you made a $5,000 church donation; (ii) on September 1, 2005 you made another $5,000 church donation; and (iii) on December 1, 2005, you made a $50,000 cash donation to a public charity. Under the old rules, you could only deduct $50,000 of your $60,000’s worth of donations.

Under the new rules, you could deduct the full $60,000. The two $5,000 church donations do not fall within the Relief Act’s provision (the first was made too early, and neither was made to an applicable entity), which means you made $10,000 of “other” donations. Thus, for any cash contributions made after August 27, 2005, you can deduct up to $90,000 (your $100,000 AGI less the $10,000 of other donations), which means you can fully deduct the $50,000 cash donation made on December 1, 2005.