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1 1 (July 13, 2020)

handle is hein.crs/govdaqn0001 and id is 1 raw text is: The Charitable Deduction for Individuals The charitable deduction is a long-standing feature of the individualincome tax It is also one of the largestindividual income taxprovisions in terms of annual forgone revenue, an estimated $44.4 billion in FY2020. Before changes implemented by the 2017 taxrevision (P.L. 115-97), the tax expenditure for charitable contributions was larger, an estimated $57.0billion for FY2017. This In Focus provides background information on the individual charitable deduction. Under current law, taxpayers who itemize their deductions can-subject to certainlimitations-deduct charitable donations to qualifying organizations. Qualifying organizations are generally public charities or private foundations with tax-exempt status under Internal Revenue Code (IRC) Section 501(c)(3); federal, state, or local governments; andother less conmon types ofqu alifying organizations. Tax-deductible donations to qualifying organizations can be in the form ofcash or property. Property held for more than one year is often referred to as long-term capitalgain property. Property held for less than a year is often referred to as short-term capitalgainproperty. Depending on (1) the type of property donated and (2) the type ofqualifying organization thatreceives the donations, there are limitations on the total dollar amount that canbe deducted by the taxpayer in a given taxyear. The limitations are defined as a percentage ofthe taxpayer's adjustedgross income, or AGI (computed without regard to netoperating loss carrybacks), as noted in Table 1. If the amount deducted exceeds thetaxpayer's AGI limitation, the excess can be carried forward and deducted on future years' tax returns for up to five years. Fornoncash donations, there are rules on how to value the property. Depending onthe typeofproperty and the recipient organizations, the property is generally valued at its basis (i.e., what the taxpayer originally paid for the property with adjustments) or its fair market value (how much the taxpayer would receive in an open market for the property at the time it is donated), as noted in Table 1. The charitable deduction was first enacted to offset the potential negative effects ofincreased income taxes on charitable giving as part of theWar Income TaxRevenue Act of 1917 (P.L. 65-50). The overall amount thatcould be deducted was limited to 15% of net taxable income to prevent taxpayers fromeliminating tax liability by claiming the deduction. The deduction has been changed dozens of times since enactment. Key legislative changes relevant to this In Focus are highlightednext. Updated July 13,2020 Table I. Limitations on Charitable Contributions Valuation Type of Rules for Limit (% of Donation Recipient Property AGI) Public charity; private Basis of the 50% operating foundation; property Cash or federal, state, local 100% (cash short-term government 2020 only) gain capital property 60% (cash) Private nonoperating Basis of the 30% foundation; other property Public charity; private Fair market 30% operating foundation; value Long-term capital gain federal, state, local government property Private nonoperating Basis of the 20% foundation; other property Source: Internal Revenue Code (IRC) Section 170. Note: These are general rules, and there are numerous exceptions. AGI limits for cash contributions are temporarily 100% in 2020, and 60%, th rough 2025. For more information, see CRS Report R45922, Tax Issues Relating to Charitable Contributions and Organizations. Over time, Congress has modified the maximum amount that can be deducted in a given year by changing the income limitation. In 1952, as part P.L. 82-465, Congress raised the limitation to 20% of AGI. In 1954, Congress increasedthe maximmm deduction limit to 30% of AGI (P.L. 83-591) for donations to certain public charities. The Tax Reform Act of 1969 (P.L. 91-172) raised the deduction limit to 50% of AGI for donations to public charities and allowed deductions for contributions to private operating foundations. The 1969 act also impo s ed a 30% limit for contributions of appreciated property and impo s ed other restrictions on contributions o flong-termcapit al gain property. The Deficit Reduction Act of 1984 (P.L. 98-369) raised the limitation on the deduction for donations of cash or short-termcapital gain property to private nonoperating foundations from20% to 30% of AGI. There were exceptions to these limits for particularly large gifts. The Revenue Act of 1924 (P.L. 68-176) specified that if a taxpayer made contributions exceeding 90% of net income in the tax year and each of the past 10 years, a full deduction was allowed. A phaseout oftheunlimited deduction was included in the TaxReform Act of 1969. In the early 1980s, temporary changes provided a charitable deduction to nonitemizers. The Economic Recovery Act of 1981 (P.L. 97-34) allowed taxpayers who took the standard deduction to claiman additional deduction for charitable A A '2

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