If you give public charities appreciated stocks or real estate (capital gain property), your contributions are usually limited to 30% of your Adjusted Gross Income (AGI). This limit is not as high as the usual 60% limit for cash contributions to public charities.

Why 30%?

Capital gain property has gone up in value, and if sold, it would be subject to a capital gains tax. Donating it directly to a charity is a way to avoid capital gains tax and receive a deduction for the fair market value of the property. In order to balance this tax benefit, the IRS establishes a lower deduction limit. The tax treatment of capital gains property given in a donation will be described in the following example.

Amy makes the decision to donate her land that she has been holding for investment for four years to a public nonprofit school that is qualified. Amy earns $80,000 from her adjusted gross income (AGI). The land's FMV is $32,000 on the day it is donated. Four years ago, Amy bought the land for $19,000. What is the maximum amount Amy can deduct as a charitable contribution?

Only qualified organizations are eligible for deductible charitable contributions. The donation amount is contingent on the property type and the organization receiving the donation. Furthermore, the AGI of the taxpayer determines the deductibility of charitable contributions. Charitable deductions are limited to 50% of AGI as a whole.

When holding land for investment for more than one year, it is classified as capital gain property and is deducted at its FMV of $32,000 when it is contributed. The contribution of capital gain property to public charities is limited to 30% of AGI, which is $24,000 ($80,000 30%). The amount Amy can deduct as a charitable contribution for the current tax year is restricted to $24,000, but she can carry over the extra $8,000 ($32,000 – $24,000) for the next 5 years.