These slides are taken from the graduate financial planning course "Introduction to Charitable Planning" at Texas Tech University. Details at www.EncourageGenerosity.com

1. Income
Limits
on
Charitable
Deductions

2. All slides are
taken from this
book.
Available from
Amazon.com
Full color version available at
www.createspace.com/4707238

3. If you want to ask
BIGyou need to ask for
gifts of assets.
If you ask for gifts
of assets, you need
to know these
rules

4. We pay
taxes on
income

5. Charitable
gifts can
sometimes
be deducted
from taxable
income,
thereby
reducing
taxes owed

6. Charitable deductions are limited to
20%, 30%, or 50% of income
depending on the gift and recipient

7. Why should we
limit charitable
deductions?

8. Encouraging
giving is good,
but at least
some revenue
should go to
the
government

9. Otherwise,
wealthy
people could
pay zero
taxes by
annually
transferring
assets to
charity

10. Taxes? Oh, no, we don’t pay taxes.

11. Why are
people making
such large
donations,
anyway?

12. Are people taking vows of poverty and
giving away everything they earn?

13. Actually, the
limits are an
issue with
gifts from
assets
where
wealth is far
greater than
annual
income

14. A common issue with wealthy
retiree donors who
have limited
taxable
income
but large
assets

15. Some gifts
may be
deducted up
to 50% of
income if
given to a
public charity,
government,
or an
operating
private
foundation
Note: The term “income” in these
slides means adjusted gross income
for the year of the gift excluding any
net operating loss carryback

16. Public
CharityAnything EXCEPT long-
term capital gain
or a farmer giving a
qualified conservation easement
50% limit

17. 50% limit
Money
(given or spent
performing services
for the charity)
Public
Charity

18. 50% limit
Any ordinary
income property
Public
Charity
Ex: Creations by the donor

19. Public
Charity
50% limit
Any ordinary
income property

20. Public
Charity
Any ordinary
income property
50% limit
Short-Term Capital
Gain Property
(held 1 year or less)

21. Cash and ordinary income property are
treated the same because they aren’t
long-term capital gain property

22. 1990 Paid: $1
Current Value: $25
Long-term (>1 year) capital gain property
If fair market value of
gain property can be
deducted, then gifting to
a public charity is
30% limit
If only basis of gain
property can be
deducted, then gifting to
a public charity is
50% limit

23. 1990 Paid: $600 acre
Current Value: $2,800/acre
Long-term capital gain property
deducted at fair market value
and given to public charity
30% limit

24. 1990 Paid: $600 acre
Current Value: $2,800/acre
“Special election” values all long-
term capital gain gifts in a year at
basis, then such gifts to public charity
50% limit

25. A similar idea applies to long-term
capital gain tangible personal property
(All the stuff in your garage, including cars, jewelry, artwork)

26. Public Charity1990 Paid $1
Current Value: $25
50% limitlong-term capital gain tangible personal
property valued at BASIS due to
“unrelated use”

27. Public Charity1990 Paid $1
Current Value: $25
30% limitlong-term capital gain tangible personal
property valued at FAIR MARKET VALUE due to
“related use”

28. 30% limit
if “for the use of” charity
Concept: Money given “in trust” to another entity but charity gets current benefit
1. Paying premiums for charity-
owned life insurance or
2. Charitable lead trust
CLT or
Insurance
Company
Current
Benefit

29. So, that covers gifts
to public charities.
What’s about gifts to
private foundations?

30. Anything EXCEPT long-
term capital gain
30% limit
Bill & Melinda Gates
Private Foundation
Private
Foundation
(non-operating)

31. 30% limit
Money
(given or spent
performing services
for the charity)
Private
Foundation
(non-operating)
Bill & Melinda Gates
Private Foundation

32. 30% limit
Any ordinary
income property
Ex: Creations by the donor
Private
Foundation
(non-operating)
Bill & Melinda Gates
Private Foundation

33. 30% limit
Any ordinary
income property
Private
Foundation
(non-operating)
Bill & Melinda Gates
Private Foundation

34. Any ordinary
income property
30% limit
Private
Foundation
(non-operating)
Bill & Melinda Gates
Private Foundation
Short-Term Capital
Gain Property
(held 1 year or less)

35. 20% limit
1990 Paid $1
Current Value: $25
Bill & Melinda Gates
Private Foundation
Long-Term Capital Gain Property
Private
Foundation
(non-operating)

36. 20% limit
Bill & Melinda Gates
Private Foundation
Private
Foundation
(non-operating)
Long-Term Capital Gain Property
(including tangible personal property)
Current Value: $25
1990 Paid $1

37. C-corp: limited to 10%
of taxable income with
5-year carry forward.
S-corp: passes through all
deductions to
shareholders.
Corporate Giving

38. Current Value: $25
1990 Paid $1
Long-term capital gain property valued at basis
“unrelated” use tangible
personal property
Public
Charity
Public
Charity
Anything except long-term
capital gain property (e.g.,
cash or ordinary income property)
special
election

39. Current Value: $25
1990 Paid $1
“related use” tangible
personal property
Public
Charity
Private Foundation
(non-operating)
no special
election
Bill & Melinda Gates
Private Foundation
Long-term capital gain property valued at fair
market value
Anything except long-term capital gain property
(e.g., cash or ordinary income property)

40. Any long-term capital gain property
Current Value: $25
1990 Paid $1 Private Foundation
(non-operating)
Bill & Melinda Gates
Private Foundation

41. What happens if
you give more
than the limit?

42. The excess
deduction may
be used later (as
soon as
charitable
deductions do
not exceed the
income limits),
but must be used
within five years.

43. Unused charitable
deductions may be carried
over for up to 5 years
Year 1
Charitable
Deduction
Maximum
for Each Year
Deductible
in Year 1
(under
limit)
Not
Deductible
in Year 1
(over limit)
Deductible
Carryover
Deductible
Carryover
Deductible
Gifts Made
in Year 2
Deductible
Gifts Made
in Year 3
Deductible
Gifts Made
in Year 4
Year 4Year 2 Year 3

44. Not
Deductible
in Year 2
(over limit)
Oldest carryover
deductions are used first
Charitable
Deduction
Maximum
for Each Year
Deductible
in Year 1
(under
limit)
Not
Deductible
in Year 1
(over limit)
Deductible
Carryover
Deductible
Carryover
Deductible
Gifts Made
in Year 3
Deductible
Gifts Made
in Year 4
Deductible
Gifts Made
in Year 5
Deductible
in Year 2
(under
limit)
Year 1 Year 4Year 2 Year 3 Year 5

45. What happens
to a carryover
deduction if I
don’t itemize
(i.e., just take
the standard
deduction)?

46. Charitable
Deduction
Maximum
for Each Year
Deductible
in Year 1
(under
limit)
Not
Deductible
in Year 1
(over limit)
Carryover
Eliminated
Deductible
Carryover
Potentially
Deductible
Gifts Made
in Year 2
Deductible
Gifts Made
in Year 3
Deductible
Gifts Made
in Year 4
The carryover is reduced as if you took the
maximum possible charitable deduction
In year 2 no gifts
were deducted
because the
standard deduction
was used
Year 1 Year 4Year 2 Year 3

47. What happens to a carryover
deduction if the donor dies?

48. The carryover
deduction is
lost at death.
For joint returns, the carryover that could have
been claimed by the decedent if the couple had
filed separately is lost.

49. How do the different
limits work together?

50. Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income
Each limitation rule is like a glass that
can only hold so much. For each glass,
you must find out if the total gifts for
the year of that type will fit.
All gifts All gifts
of LT capital gain
(except “special election”)
All gifts
to private
foundations
or “for the use of” public charities
All gifts of LT capital
gain to private
foundations

51. Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income
Any overflow in any category is carried
over. Some gifts may be carried over
for more than one reason (i.e., they
may spill out of more than one glass).
All gifts All gifts
of LT capital gain
(except “special election”)
All gifts
to private
foundations
or “for the use of” public charities
All gifts of LT capital
gain to private
foundations

52. Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income
$30,000 FMV LT capital gain
property to public charity
$20,000 cash to private foundation
$100,000 income
All gifts All gifts
of LT capital gain
(except “special election”)
All gifts
to private
foundations
or “for the use of” public charities
All gifts of LT capital
gain to private
foundations

53. Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income
$100,000 income
 $50,000



$30,000
$20,000
$0
$30,000 FMV LT capital gain
property to public charity
$20,000 cash to private foundation
All gifts All gifts
of LT capital gain
(except “special election”)
All gifts
to private
foundations
or “for the use of” public charities
All gifts of LT capital
gain to private
foundations

54. Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income
 $50,000



$30,000
$20,000
$0
No carryover.
All deductions
are allowed in
the current year.
$100,000 income
All gifts All gifts
of LT capital gain
(except “special election”)
All gifts
to private
foundations
or “for the use of” public charities
All gifts of LT capital
gain to private
foundations

55. If not all gifts can be
deducted (i.e., there is
carry over) which gifts
get deducted first?

56. Current Value: $25
1990 Paid: $1
Current Value: $25
1990 Paid: $1
Cash or ordinary income property
LT capital or tangible personal property
valued at basis
Cash or ordinary income property
LT capital or tangible
personal property
valued at FMV
Bill & Melinda Gates
Private Foundation
Bill & Melinda Gates
Private Foundation
LT capital or tangible
personal property
(any)

57. Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income
$30,000 cash to public charity
$30,000 FMV LT capital gain
property to public charity
$100,000 income
All gifts All gifts
of LT capital gain
(except “special election”)
All gifts
to private
foundations
or “for the use of” public charities
All gifts of LT capital
gain to private
foundations

58. Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income
$100,000 income
X $60,000



$30,000
$0
$0
$30,000 cash to public charity
$30,000 FMV LT capital gain
property to public charity
All gifts All gifts
of LT capital gain
(except “special election”)
All gifts
to private
foundations
or “for the use of” public charities
All gifts of LT capital
gain to private
foundations

59. Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income
$100,000 income


$30,000
$0
$0
$30,000 cash to public charity
$30,000 FMV LT capital gain
property to public charity
$20k FMV
capital gain
property
$30k cash
$10k FMV
capital gain
propertyX

All gifts All gifts
of LT capital gain
(except “special election”)
All gifts
to private
foundations
or “for the use of” public charities
All gifts of LT capital
gain to private
foundations

60. Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income



$30,000
$0
$0
$10,000 carryover of
FMV capital gain
charitable deduction
$20k FMV
capital gain
property
$10k FMV
capital gain
propertyX

All gifts All gifts
of LT capital gain
(except “special election”)
All gifts
to private
foundations
or “for the use of” public charities
All gifts of LT capital
gain to private
foundations
$30k cash

61. Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income
$2,000 cash to public charity
$56,000 FMV LT capital gain
property to public charity
$5,000 cash to private foundation
$100,000 income
All gifts All gifts
of LT capital gain
(except “special election”)
All gifts
to private
foundations
or “for the use of” public charities
All gifts of LT capital
gain to private
foundations

62. Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
$100,000 income
X $63,000
X

$56,000
$0
$2,000 cash to public charity
$56,000 FMV LT capital gain
property to public charity
$5,000 cash to private foundation
$5,000

Holds
30%
of Income
All gifts All gifts
of LT capital gain
(except “special election”)
All gifts
to private
foundations
or “for the use of” public charities
All gifts of LT capital
gain to private
foundations

63. Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
$100,000 income
 $0
$2,000 cash to public charity
$56,000 FMV LT capital gain
property to public charity
$5,000 cash to private foundation
$5,000

Holds
30%
of Income
$48k FMV
capital gain
property
$2k cash to
public charity
$8k FMV
capital gain
propertyX


$5k cash to
private f.X
$30k FMV
capital gain
property
$26k FMV
capital gain
propertyX
All gifts All gifts
of LT capital gain
(except “special election”)
All gifts
to private
foundations
or “for the use of” public charities
All gifts of LT capital
gain to private
foundations

64. Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
 $0
$5,000

Holds
30%
of Income
$48k FMV
capital gain
property
$2k cash to
public charity
$8k FMV
capital gain
propertyX


$5k cash to
private f.X
$30k FMV
capital gain
property
$26k FMV
capital gain
propertyX

$5,000 carryover of cash
to private foundations
$26,000 carryover of
FMV LT capital gain
property (includes the
$8,000 already carried
over for other reasons)
All gifts All gifts
of LT capital gain
(except “special election”)
All gifts
to private
foundations
or “for the use of” public charities
All gifts of LT capital
gain to private
foundations

65. $5,000 cash to private foundation: Deduct $0
$2,000 cash to public charity: Deduct $2,000
$56,000 FMV LT capital gain property to public
charity: Deduct $30,000
+ $5,000 carryover of
cash to private
foundations charitable
deduction
+ $26,000 carryover of FMV
LT capital gain property
charitable deduction

66. Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
Holds
30%
of Income
$20,000 FMV LT capital gain
property to public charity
$20,000 LT capital gain property to
private foundation
$100,000 income
All gifts All gifts
of LT capital gain
(except “special election”)
All gifts
to private
foundations
or “for the use of” public charities
All gifts of LT capital
gain to private
foundations

67. Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
$100,000 income
X

$40,000
$20,000
$20,000

Holds
30%
of Income

$20,000 FMV LT capital gain
property to public charity
$20,000 LT capital gain property to
private foundation
All gifts All gifts
of LT capital gain
(except “special election”)
All gifts
to private
foundations
or “for the use of” public charities
All gifts of LT capital
gain to private
foundations
$40,000

68. Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
$100,000 income
 $20,000
$20,000
Holds
30%
of Income
$40,000
$20,000 FMV LT capital gain
property to public charity
$20,000 LT capital gain property to
private foundation
$20k FMV
capital gain to
public charity
$10k capital
gain to priv. f.

$10k capital
gain to priv. f.X
All gifts All gifts
of LT capital gain
(except “special election”)
All gifts
to private
foundations
or “for the use of” public charities
All gifts of LT capital
gain to private
foundations

69. Holds
50%
of
Income
Holds
20%
of Income
Holds
30%
of Income
 $20,000
$20,000

Holds
30%
of Income

$20k FMV
capital gain to
public charity
$10k capital
gain to priv. f.

$10k capital
gain to priv. f.X
$10,000 carryover of
capital gain property given
to a private foundation
All gifts All gifts
of LT capital gain
(except “special election”)
All gifts
to private
foundations
or “for the use of” public charities
All gifts of LT capital
gain to private
foundations
$40,000

70. Income
Limits
on
Charitable
Deductions

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73. This slide set is from the curriculum for
the Graduate Certificate in Charitable
Financial Planning at Texas Tech
University, home to the nation’s largest
graduate program in personal financial
planning.
To find out more about the online
Graduate Certificate in Charitable
Financial Planning go to
www.EncourageGenerosity.com
To find out more about the M.S. or
Ph.D. in personal financial planning at
Texas Tech University, go to
www.depts.ttu.edu/pfp/
Graduate Studies in
Charitable Financial Planning
at Texas Tech University