The federal tax law allows you to take a deduction for the value of all cash and property donations you make to qualified organizations. Qualified organizations include high schools that operate on a nonprofit basis. However, various limitations exist regarding the amount of a donation you can deduct in a single tax year.
Donation Requirements
A donation you make to a high school is deductible to the extent you do not receive a benefit for making the donation. You must reduce the deduction by the value of any personal benefit you receive. For example, if you make a $1,000 donation for the school to purchase computers and in exchange, the principal provides you with a free ticket to a fundraising dinner, you must reduce the deduction by the price for which the school sells tickets to the public. However, if the ticket price is $100 but expressly states that 50 percent of the ticket price is a donation, you only reduce the deduction by $50.
Donation Value
If you donate property, the deduction you can take is equal to its fair market value. The fair market value represents the price you can sell the item for on the open market. There are different valuation methods for various types of property. For example, if you donate a used vehicle to a high school, the IRS requires you to reference a reputable price guide, such as the Kelley Blue Book. If you donate used clothing, you can deduct the price for which a consignment sells similar clothing.
Capital Gain Property
Capital gain property includes any asset you initially purchase for investment or personal use that appreciates in value and that you hold for more than a year. This property would result in the imposition of capital gains tax if you sell the property on the open market rather than provide it as a donation to the high school. When you donate capital gain property, you can deduct the value of the asset up to an amount equal to 30 percent of adjusted gross income for the year.
Annual Limitations
A deduction is available for donations you make to all qualified organizations such as a nonprofit high school. However, the IRS categorizes some of these organizations as "50-percent-limit organizations." If you donate property to one of these organizations, you are eligible to deduct all charitable contributions you make that do not exceed an amount equal to 50 percent of adjusted gross income. Donations you make to all other organizations are limited to an amount equal to 30 percent of adjusted gross income.
Carryovers
If the amount of annual donations exceeds the adjusted gross income limitations, you can deduct the nondeductible portion in any of the next five tax years. However, any limitation that applies in the original tax year applies in future years. You must exhaust the earlier year donations before deducting carryover amounts from later years.
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