7.5 Charitable Contributions

Charitable contributions remain one of the most tested itemized deduction topics. The 2025 rules are largely unchanged from 2024, but the One Big Beautiful Bill Act (OBBBA) imposes significant changes beginning tax year 2026—candidates must know what applies in 2025 versus what is coming.

Who Can Deduct Charitable Contributions (2025)?

Only taxpayers who itemize can claim a Schedule A charitable contribution deduction in 2025. The 2025 standard deductions are:

• $15,750 for Single or MFS
• $31,500 for MFJ or QSS
• $23,625 for HoH

Coming in 2026 (NOT 2025): OBBBA creates a new above-the-line charitable deduction for non-itemizers: $1,000 for Single filers and $2,000 for MFJ filers for cash contributions to public charities. This does not apply to the 2025 tax year. The pandemic-era above-the-line deduction (2020-2021) expired and has not been restored for 2025.

Qualified Organizations

50% Limit Organizations (Public Charities):

• 501(c)(3) organizations — charitable, religious, educational, scientific, or literary
• Churches, synagogues, mosques — automatically qualify without formal IRS recognition
• Federal, state, and local governments — for public purposes
• Public colleges and universities
• Hospitals and medical research organizations
• Donor-advised funds (subject to 60% cash limit)

30% Limit Organizations:

• Private non-operating foundations
• Veterans' organizations
• Fraternal societies (if used for charitable purposes)
• Nonprofit cemetery companies

Non-Deductible Contributions

AGI Limitations (2025)

Important Rules (2025):

1. Overall ceiling: 50% of AGI cannot be exceeded by total deductions in any one year (except cash to public charities at 60%)
2. Apply limits in order: 60% → 50% → 30% → 20%
3. Excess carries forward 5 years
4. Use FIFO (first-in, first-out) for carryovers
5. NO 0.5%-of-AGI floor for 2025 (the OBBBA floor begins in 2026)

Example: A taxpayer with $100,000 AGI donates $70,000 cash to her church (60% org). Deduction = $60,000 (60% × $100,000). The $10,000 excess carries forward up to 5 years.

Property Donations: FMV vs. Basis Rules

Long-Term Capital Gain Property (held > 1 year):

• Generally deduct Fair Market Value (FMV)
• Subject to 30% AGI limit for public charities
• Can elect basis instead, raising the limit to 50%

Ordinary Income Property / Short-Term Capital Gain Property (held ≤ 1 year):

• Deduct lesser of FMV or adjusted basis
• Includes inventory, artwork created by donor, short-term stocks

Depreciated Property (FMV < Basis):

• Deduct FMV only—cannot deduct a loss

Tangible Personal Property — Special Rule:

• If charity's use is related to its exempt purpose: deduct FMV
• If charity's use is unrelated: deduct basis
• Example: Artwork donated to a museum (related) vs. artwork donated to a homeless shelter for auction (unrelated)

Vehicles, Boats, Aircraft (over $500):

• If charity sells the vehicle: deduction limited to gross sales proceeds
• If charity uses the vehicle: may deduct FMV
• Requires Form 1098-C from charity within 30 days

Substantiation Requirements (Unchanged for 2025)

Written Acknowledgment Must Include:

1. Amount of cash and description of property
2. Whether charity provided goods/services in return
3. Good faith estimate of value of goods/services provided (or statement of intangible religious benefit)

Timing: Acknowledgment must be obtained by the earlier of:

• Date the tax return is filed, OR
• Due date (including extensions)

Appraisal Requirements (> $5,000):

• Qualified appraiser (not donor, donee, or party to the transaction)
• Appraisal made no earlier than 60 days before donation
• Appraisal received no later than return due date (including extensions)
• Exceptions: publicly traded securities, inventory, vehicles sold by charity

Quid Pro Quo Contributions

When you receive something in return, the deductible amount is reduced by the FMV of the benefit.

Example: You pay $500 to attend a charity gala; the dinner has a FMV of $150. Deductible = $350.

Disclosure: Charities must provide written disclosure for quid pro quo contributions over $75.

Token Exceptions (no reduction needed):

• Small benefits like logo items costing the charity $13.00 or less when the contribution is $65.00 or more (2025 indexed thresholds; check current Rev. Proc.)
• Intangible religious benefits (masses, prayers)

Carryover of Excess Contributions

Contributions exceeding AGI limits carry forward 5 years. Carryover retains its original character (cash vs. capital gain property) and is subject to the same percentage limits. Apply current-year contributions first; then carryovers FIFO.

Qualified Charitable Distributions (QCDs) — 2025

Requirements:

• Taxpayer must be age 70½ or older (this age threshold remains 70½ even though the RMD start age is 73)
• Distribution made directly from IRA to qualified charity
• Cannot go to donor-advised funds or private foundations

2025 Limits:

• Maximum $108,000 per individual (up from $105,000 in 2024 — inflation indexed)
• Married couples: each spouse may QCD up to $108,000
• One-time $54,000 election to fund a charitable gift annuity / charitable remainder trust through a QCD

Tax Benefits:

• Distribution excluded from gross income
• Counts toward Required Minimum Distribution (RMD)
• Beneficial even if standard deduction taken
• Reduces AGI (helps with IRMAA, Social Security taxation, NIIT)

Reduction Rule: QCD amount must be reduced by deductible IRA contributions made after age 70½.

LOOKING AHEAD — OBBBA Charitable Changes (Start 2026, NOT 2025)

These provisions do not apply to 2025 returns but EAs should know them so they can advise clients:

1. 0.5% AGI Floor on Itemized Charitable Contributions (2026+):

• Only contributions in excess of 0.5% of AGI become deductible
• Example: AGI $100,000 → first $500 of donations is non-deductible; the rest is deductible (still subject to 60%/30%/20% ceilings)
• Floor amount lost cannot be carried forward as a deduction

2. Above-the-Line Charitable Deduction for Non-Itemizers (2026+):

• Cash contributions to public charities only (no DAFs or private foundations)
• Up to $1,000 Single / $2,000 MFJ
• HoH/QSS amounts to be confirmed by IRS guidance

Bottom line for 2025 EA exam: Use the pre-OBBBA-floor rules — no 0.5% floor, no non-itemizer deduction. Mention the 2026 changes only as upcoming context.

EA Exam Tips

Commonly Tested:

1. 60% / 30% / 20% limits — know which applies to which combo
2. Cash vs. property — different rules
3. Public charity vs. private foundation — different limits
4. FMV vs. basis — when each applies
5. Substantiation thresholds — $250, $500, $5,000 are key numbers
6. QCD eligibility — age 70½ (NOT 73), 2025 limit $108,000
7. OBBBA timing: the 0.5% floor and non-itemizer deduction start 2026 — do NOT apply them to 2025 returns

Watch for Traps:

• Donations to individuals are NEVER deductible
• Services/time cannot be deducted (only unreimbursed expenses)
• QCDs must be DIRECT to charity, not through donor
• 2025 has NO 0.5% AGI floor (that's a 2026 OBBBA change)
• 2025 has NO above-the-line charitable deduction for non-itemizers

Quick Memory Aid: "Sixty-Thirty-Twenty" — Cash to public = 60%, Property or private = 30%, Property to private foundations = 20%.