By Jim Kelly, CPA
What exactly is appreciated property? The total deduction for charitable contributions on an individual income tax return cannot exceed 50% of the donor’s adjusted gross income (AGI). This limitation has been increased to 60% starting with tax year 2018. Contributions above this limit can be carried forward up to five years. However, specific contributions of appreciated property are limited to 30% or 20% of AGI, depending on the donee.
If an item were sold, such as a stock, and its fair market value was greater than its cost, the stock becomes appreciated property. The sale would qualify for long-term capital gains treatment if the stock was owned for more than one year. In this case the stock contribution deduction amount would be the fair market value of the stock, subject to the 30% or 20% AGI limitation. The appreciation of the stock is not taxed and 50% limitation, instead of the 30%, would apply if the donor elects to deduct only the stock’s basis, instead of its fair market value. If the stock were held for one year or less, the gain would be subject to ordinary income treatment. In this case, the charitable deduction is generally limited to the cost basis of the stock, again subject to the 30% or 20% AGI limitation.
Generally, the 30% limitation of appreciated property applies to donations to public charitable organizations such as churches, colleges, and hospitals; also known as 50% limit organizations. The 20% limitation generally applies to private foundations known as non-50% limit organizations.
Documentation of the fair market value of appreciated property is a must for donations greater than $500. For property valued at more than $500, a written description of the property is required. For property valued at more than $5,000, a qualified appraisal is required.