Tax Information

Tax Information / IRS Publication 526 / Types of Qualified Organizations


Tax Information

Due to the continuing decline in federal assistance for nonprofit organizations, generous private support is crucial to meeting our goals. The IRS clearly recognizes and encourages this private support and they assure our prospective donors that we meet all federal requirements for tax-exempt status by their designation of a 501(c) (3) corporation.

The process of donation to a publicly supported nonprofit organization creates significant tax advantages for you, because you deduct 100% of the appraised value of your gift, and you can then apply this savings on up to 50% of your adjusted gross income annually. Any remaining balance not immediately deducted can be carried forward for the next five years.

In some instances an IRS approved bargain sale can be negotiated at the time of your donation. Here you receive a partial cash sale while the remaining value of your gift is 100% deductible. A bargain sale allows the donor to recover expenses that make a charitable gift economically feasible.

You may read excerpts from the IRS Publication 526:

Charitable Contributions.

When you decide that a donation to The Youth Rescue Fund of LA Youth Supportive Services, Inc. is appropriate for you, we will assist you through each step of the process. We are able to work with all legal or financial firms assigned to oversee your assets and taxes.


IRS Publication 526:
Charitable Contributions

This excerpted information is provided to you only as a courtesy. The complete text of this federal publication is available online at http://www.irs.ustreas.gov/

We strongly suggest that you seek qualified legal and financial advice, especially regarding the donation of all property you believe to be of greater value than $5,000.00.

Introduction

This publication discusses organizations that are qualified to receive deductible charitable contributions, the types of contributions you can deduct, how much you can deduct, what records to keep, and how to report charitable contributions. A charitable contribution is a donation or gift to, or for the use of, a qualified organization. It is voluntary and is made without getting, or expecting to get, anything of equal value.

Qualified organizations

Qualified organizations include nonprofit groups that are religious, charitable, educational, scientific, or literary in purpose, or that work to prevent cruelty to children or animals. You will find descriptions of these organizations below.

Organizations That Qualify To Receive Deductible Contributions

You can ask any organization whether it is a qualified organization and most will be able to tell you. Or, you can check IRS Publication 78, which lists most qualified organizations.


Types of Qualified Organizations

Generally, only the five following types of organizations can be qualified organizations.

A community chest, corporation, trust, fund, or foundation organized or created in or under the laws of the United States, any state, the District of Columbia, or any possession of the United States (including Puerto Rico). It must be organized and operated only for:

You Can Deduct

Generally, you can deduct your contributions of money or property that you make to, or for the use of, a qualified organization. A gift or contribution is “for the use of” a qualified organization when it is held in a legally enforceable trust for the qualified organization or in a similar legal arrangement. The contributions must be made to a qualified organization and not set aside for use by a specific person. If you give property to a qualified organization, you generally can deduct the fair market value of the property at the time of the contribution.

Your deduction for charitable contributions is generally limited to 50% of your adjusted gross income.

Determining Fair Market Value

This section discusses general guidelines for determining the fair market value of various types of donated property. Fair market value is the price at which property would change hands between a willing buyer and a willing seller. Neither having to buy or sell, arid both having reasonable knowledge of all the relevant facts.

Cars, boats, and aircraft.

If you contribute a car, boat, or aircraft to a charitable organization, you must determine its fair market value. Certain commercial firms and trade organizations publish guides, commonly called “blue books,” containing complete dealer sale prices or dealer average prices for recent model years. The guides may be published monthly or seasonally, and for different regions of the country. These guides also provide estimates for adjusting for unusual equipment, unusual mileage, and physical condition. The prices are not “official” and these publications are not considered an appraisal of any specific donated property. But they do provide clues for making an appraisal and suggest relative prices for comparison with current sales and offerings in your area. These publications are sometimes available from public libraries or from the loan officer at a bank, credit union, or finance company. Except for inexpensive small boats, the valuation of boats should he based on an appraisal by a marine surveyor because the physical condition is critical to the value.

Bargain Sales

A bargain sale of property to a qualified organization (a sale or exchange for less than the property’s fair market value) is partly a charitable contribution and partly a sale or exchange.

Part that is a sale or exchange

The part of the bargain sale that is a sale or exchange may result in a taxable gain. For more information on determining the amount of a taxable gain, see Bargain Sales as Gills in chapter 1 of Publication 544.

Part that is a charitable contribution

Figure the amount of your charitable contribution in three steps.

When To Deduct

You can deduct your contributions only in the year you actually make them in cash or other property (or in a succeeding carry over year, as explained below)

The 50% limit applies to the total of all charitable contributions you make during the year. This means that your deduction for charitable contributions cannot be more than 50% of your adjusted gross income for the year. The 50% limit applies to those organizations listed below as 50% Limit Organizations.

50% Limit Organizations

You can ask any organization whether it is a 50% limit organization, and most will be able to tell you. Or you may check IRS Publication 78 (described earlier). Only the following types of organizations are 50% limit organizations.

Carryovers

You can carry over your contributions that you are not able to deduct in the current year because they exceed your adjusted gross income limits. You can deduct the excess in each of the next 5 years until it is used up, but not beyond that time. Your total contributions deduction for the year to which you carry your contributions cannot exceed 50% of your adjusted gloss income for that year.

Non-Cash Contributions

For a contribution not made in cash, the records you must keep, depends on whether your deduction for the contribution is:

Deductions Over $500: But Not Over $5,000

If you claim a deduction over $500 but not over $5,000 for a non-cash charitable contribution, you must have the acknowledgement and written records described [below].

Your records must also include:

Deductions over $5,000

If you claim a deduction of over $5,000 for a charitable contribution of one property item or a group of similar property items, you must have the acknowledgement and the written records described under Deductions Over $500 But Not Over $5,000. In figuring whether your deduction is over $5,000, combine your claimed deductions for all similar items donated to any charitable organization during the year. Generally, you must also obtain a qualified written appraisal of the donated property from a qualified appraiser.

[This information was excerpted and edited from IRS Publication 526, rev. 11/96; Charitable Contributions.]