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Taxact login tax return taxact login page taxact sign page 4. Taxact login tax return taxact login page taxact sign page   Interest Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Allocation of InterestOrder of funds spent. Taxact login tax return taxact login page taxact sign page Payments from checking accounts. Taxact login tax return taxact login page taxact sign page Amounts paid within 30 days. Taxact login tax return taxact login page taxact sign page Optional method for determining date of reallocation. Taxact login tax return taxact login page taxact sign page Interest on a segregated account. Taxact login tax return taxact login page taxact sign page How to report. Taxact login tax return taxact login page taxact sign page Interest You Can DeductStatement. Taxact login tax return taxact login page taxact sign page Expenses paid to obtain a mortgage. Taxact login tax return taxact login page taxact sign page Prepayment penalty. Taxact login tax return taxact login page taxact sign page De minimis OID. Taxact login tax return taxact login page taxact sign page Constant-yield method. Taxact login tax return taxact login page taxact sign page Loan or mortgage ends. Taxact login tax return taxact login page taxact sign page Interest You Cannot DeductPenalties. Taxact login tax return taxact login page taxact sign page Who is a key person? Exceptions for pre-June 1997 contracts. Taxact login tax return taxact login page taxact sign page Interest allocated to unborrowed policy cash value. Taxact login tax return taxact login page taxact sign page Capitalization of Interest When To Deduct InterestPrepaid interest. Taxact login tax return taxact login page taxact sign page Discounted loan. Taxact login tax return taxact login page taxact sign page Refunds of interest. Taxact login tax return taxact login page taxact sign page Prepaid interest. Taxact login tax return taxact login page taxact sign page Discounted loan. Taxact login tax return taxact login page taxact sign page Tax deficiency. Taxact login tax return taxact login page taxact sign page Related person. Taxact login tax return taxact login page taxact sign page Below-Market LoansLimit on forgone interest for gift loans of $100,000 or less. Taxact login tax return taxact login page taxact sign page Introduction This chapter discusses the tax treatment of business interest expense. Taxact login tax return taxact login page taxact sign page Business interest expense is an amount charged for the use of money you borrowed for business activities. Taxact login tax return taxact login page taxact sign page Topics - This chapter discusses: Allocation of interest Interest you can deduct Interest you cannot deduct Capitalization of interest When to deduct interest Below-market loans Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 936 Home Mortgage Interest Deduction Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch E (Form 1040) Supplemental Income and Loss Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. Taxact login tax return taxact login page taxact sign page Sch K-1 (Form 1120S) Shareholder's Share of Income, Deductions, Credits, etc. Taxact login tax return taxact login page taxact sign page 1098 Mortgage Interest Statement 3115 Application for Change in Accounting Method 4952 Investment Interest Expense Deduction 8582 Passive Activity Loss Limitations See chapter 12 for information about getting publications and forms. Taxact login tax return taxact login page taxact sign page Allocation of Interest The rules for deducting interest vary, depending on whether the loan proceeds are used for business, personal, or investment activities. Taxact login tax return taxact login page taxact sign page If you use the proceeds of a loan for more than one type of expense, you must allocate the interest based on the use of the loan's proceeds. Taxact login tax return taxact login page taxact sign page Allocate your interest expense to the following categories. Taxact login tax return taxact login page taxact sign page Nonpassive trade or business activity interest Passive trade or business activity interest Investment interest Portfolio interest Personal interest In general, you allocate interest on a loan the same way you allocate the loan proceeds. Taxact login tax return taxact login page taxact sign page You allocate loan proceeds by tracing disbursements to specific uses. Taxact login tax return taxact login page taxact sign page The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. Taxact login tax return taxact login page taxact sign page Secured loan. Taxact login tax return taxact login page taxact sign page   The allocation of loan proceeds and the related interest is not generally affected by the use of property that secures the loan. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page You secure a loan with property used in your business. Taxact login tax return taxact login page taxact sign page You use the loan proceeds to buy an automobile for personal use. Taxact login tax return taxact login page taxact sign page You must allocate interest expense on the loan to personal use (purchase of the automobile) even though the loan is secured by business property. Taxact login tax return taxact login page taxact sign page    If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. Taxact login tax return taxact login page taxact sign page The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. Taxact login tax return taxact login page taxact sign page For more information, see Publication 936. Taxact login tax return taxact login page taxact sign page Allocation period. Taxact login tax return taxact login page taxact sign page   The period for which a loan is allocated to a particular use begins on the date the proceeds are used and ends on the earlier of the following dates. Taxact login tax return taxact login page taxact sign page The date the loan is repaid. Taxact login tax return taxact login page taxact sign page The date the loan is reallocated to another use. Taxact login tax return taxact login page taxact sign page Proceeds not disbursed to borrower. Taxact login tax return taxact login page taxact sign page   Even if the lender disburses the loan proceeds to a third party, the allocation of the loan is still based on your use of the funds. Taxact login tax return taxact login page taxact sign page This applies whether you pay for property, services, or anything else by incurring a loan, or you take property subject to a debt. Taxact login tax return taxact login page taxact sign page Proceeds deposited in borrower's account. Taxact login tax return taxact login page taxact sign page   Treat loan proceeds deposited in an account as property held for investment. Taxact login tax return taxact login page taxact sign page It does not matter whether the account pays interest. Taxact login tax return taxact login page taxact sign page Any interest you pay on the loan is investment interest expense. Taxact login tax return taxact login page taxact sign page If you withdraw the proceeds of the loan, you must reallocate the loan based on the use of the funds. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page Celina, a calendar-year taxpayer, borrows $100,000 on January 4 and immediately uses the proceeds to open a checking account. Taxact login tax return taxact login page taxact sign page No other amounts are deposited in the account during the year and no part of the loan principal is repaid during the year. Taxact login tax return taxact login page taxact sign page On April 2, Celina uses $20,000 from the checking account for a passive activity expenditure. Taxact login tax return taxact login page taxact sign page On September 4, Celina uses an additional $40,000 from the account for personal purposes. Taxact login tax return taxact login page taxact sign page Under the interest allocation rules, the entire $100,000 loan is treated as property held for investment for the period from January 4 through April 1. Taxact login tax return taxact login page taxact sign page From April 2 through September 3, Celina must treat $20,000 of the loan as used in the passive activity and $80,000 of the loan as property held for investment. Taxact login tax return taxact login page taxact sign page From September 4 through December 31, she must treat $40,000 of the loan as used for personal purposes, $20,000 as used in the passive activity, and $40,000 as property held for investment. Taxact login tax return taxact login page taxact sign page Order of funds spent. Taxact login tax return taxact login page taxact sign page   Generally, you treat loan proceeds deposited in an account as used (spent) before either of the following amounts. Taxact login tax return taxact login page taxact sign page Any unborrowed amounts held in the same account. Taxact login tax return taxact login page taxact sign page Any amounts deposited after these loan proceeds. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page On January 9, Olena opened a checking account, depositing $500 of the proceeds of Loan A and $1,000 of unborrowed funds. Taxact login tax return taxact login page taxact sign page The following table shows the transactions in her account during the tax year. Taxact login tax return taxact login page taxact sign page Date Transaction January 9 $500 proceeds of Loan A and $1,000 unborrowed funds deposited January 14 $500 proceeds of Loan B  deposited February 19 $800 used for personal purposes February 27 $700 used for passive activity June 19 $1,000 proceeds of Loan C  deposited November 20 $800 used for an investment December 18 $600 used for personal purposes Olena treats the $800 used for personal purposes as made from the $500 proceeds of Loan A and $300 of the proceeds of Loan B. Taxact login tax return taxact login page taxact sign page She treats the $700 used for a passive activity as made from the remaining $200 proceeds of Loan B and $500 of unborrowed funds. Taxact login tax return taxact login page taxact sign page She treats the $800 used for an investment as made entirely from the proceeds of Loan C. Taxact login tax return taxact login page taxact sign page She treats the $600 used for personal purposes as made from the remaining $200 proceeds of Loan C and $400 of unborrowed funds. Taxact login tax return taxact login page taxact sign page For the periods during which loan proceeds are held in the account, Olena treats them as property held for investment. Taxact login tax return taxact login page taxact sign page Payments from checking accounts. Taxact login tax return taxact login page taxact sign page   Generally, you treat a payment from a checking or similar account as made at the time the check is written if you mail or deliver it to the payee within a reasonable period after you write it. Taxact login tax return taxact login page taxact sign page You can treat checks written on the same day as written in any order. Taxact login tax return taxact login page taxact sign page Amounts paid within 30 days. Taxact login tax return taxact login page taxact sign page   If you receive loan proceeds in cash or if the loan proceeds are deposited in an account, you can treat any payment (up to the amount of the proceeds) made from any account you own, or from cash, as made from those proceeds. Taxact login tax return taxact login page taxact sign page This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. Taxact login tax return taxact login page taxact sign page   If the loan proceeds are deposited in an account, you can apply this rule even if the rules stated earlier under Order of funds spent would otherwise require you to treat the proceeds as used for other purposes. Taxact login tax return taxact login page taxact sign page If you apply this rule to any payments, disregard those payments (and the proceeds from which they are made) when applying the rules stated under Order of funds spent. Taxact login tax return taxact login page taxact sign page   If you received the loan proceeds in cash, you can treat the payment as made on the date you received the cash instead of the date you actually made the payment. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page Giovanni gets a loan of $1,000 on August 4 and receives the proceeds in cash. Taxact login tax return taxact login page taxact sign page Giovanni deposits $1,500 in an account on August 18 and on August 28 writes a check on the account for a passive activity expense. Taxact login tax return taxact login page taxact sign page Also, Giovanni deposits his paycheck, deposits other loan proceeds, and pays his bills during the same period. Taxact login tax return taxact login page taxact sign page Regardless of these other transactions, Giovanni can treat $1,000 of the deposit he made on August 18 as being paid on August 4 from the loan proceeds. Taxact login tax return taxact login page taxact sign page In addition, Giovanni can treat the passive activity expense he paid on August 28 as made from the $1,000 loan proceeds treated as deposited in the account. Taxact login tax return taxact login page taxact sign page Optional method for determining date of reallocation. Taxact login tax return taxact login page taxact sign page   You can use the following method to determine the date loan proceeds are reallocated to another use. Taxact login tax return taxact login page taxact sign page You can treat all payments from loan proceeds in the account during any month as taking place on the later of the following dates. Taxact login tax return taxact login page taxact sign page The first day of that month. Taxact login tax return taxact login page taxact sign page The date the loan proceeds are deposited in the account. Taxact login tax return taxact login page taxact sign page However, you can use this optional method only if you treat all payments from the account during the same calendar month in the same way. Taxact login tax return taxact login page taxact sign page Interest on a segregated account. Taxact login tax return taxact login page taxact sign page   If you have an account that contains only loan proceeds and interest earned on the account, you can treat any payment from that account as being made first from the interest. Taxact login tax return taxact login page taxact sign page When the interest earned is used up, any remaining payments are from loan proceeds. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page You borrowed $20,000 and used the proceeds of this loan to open a new savings account. Taxact login tax return taxact login page taxact sign page When the account had earned interest of $867, you withdrew $20,000 for personal purposes. Taxact login tax return taxact login page taxact sign page You can treat the withdrawal as coming first from the interest earned on the account, $867, and then from the loan proceeds, $19,133 ($20,000 − $867). Taxact login tax return taxact login page taxact sign page All the interest charged on the loan from the time it was deposited in the account until the time of the withdrawal is investment interest expense. Taxact login tax return taxact login page taxact sign page The interest charged on the part of the proceeds used for personal purposes ($19,133) from the time you withdrew it until you either repay it or reallocate it to another use is personal interest expense. Taxact login tax return taxact login page taxact sign page The interest charged on the loan proceeds you left in the account ($867) continues to be investment interest expense until you either repay it or reallocate it to another use. Taxact login tax return taxact login page taxact sign page Loan repayment. Taxact login tax return taxact login page taxact sign page   When you repay any part of a loan allocated to more than one use, treat it as being repaid in the following order. Taxact login tax return taxact login page taxact sign page Personal use. Taxact login tax return taxact login page taxact sign page Investments and passive activities (other than those included in (3)). Taxact login tax return taxact login page taxact sign page Passive activities in connection with a rental real estate activity in which you actively participate. Taxact login tax return taxact login page taxact sign page Former passive activities. Taxact login tax return taxact login page taxact sign page Trade or business use and expenses for certain low-income housing projects. Taxact login tax return taxact login page taxact sign page Line of credit (continuous borrowings). Taxact login tax return taxact login page taxact sign page   The following rules apply if you have a line of credit or similar arrangement. Taxact login tax return taxact login page taxact sign page Treat all borrowed funds on which interest accrues at the same fixed or variable rate as a single loan. Taxact login tax return taxact login page taxact sign page Treat borrowed funds or parts of borrowed funds on which interest accrues at different fixed or variable rates as different loans. Taxact login tax return taxact login page taxact sign page Treat these loans as repaid in the order shown on the loan agreement. Taxact login tax return taxact login page taxact sign page Loan refinancing. Taxact login tax return taxact login page taxact sign page   Allocate the replacement loan to the same uses to which the repaid loan was allocated. Taxact login tax return taxact login page taxact sign page Make the allocation only to the extent you use the proceeds of the new loan to repay any part of the original loan. Taxact login tax return taxact login page taxact sign page Debt-financed distribution. Taxact login tax return taxact login page taxact sign page   A debt-financed distribution occurs when a partnership or S corporation borrows funds and allocates those funds to distributions made to partners or shareholders. Taxact login tax return taxact login page taxact sign page The manner in which you report the interest expense associated with the distributed debt proceeds depends on your use of those proceeds. Taxact login tax return taxact login page taxact sign page How to report. Taxact login tax return taxact login page taxact sign page   If the proceeds were used in a nonpassive trade or business activity, report the interest on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership or S corporation in column (a) and the amount in column (h). Taxact login tax return taxact login page taxact sign page If the proceeds were used in a passive activity, follow the Instructions for Form 8582, Passive Activity Loss Limitations, to determine the amount of interest expense that can be reported on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership in column (a) and the amount in column (f). Taxact login tax return taxact login page taxact sign page If the proceeds were used in an investment activity, enter the interest on Form 4952. Taxact login tax return taxact login page taxact sign page If the proceeds are used for personal purposes, the interest is generally not deductible. Taxact login tax return taxact login page taxact sign page Interest You Can Deduct You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your trade or business. Taxact login tax return taxact login page taxact sign page Interest relates to your trade or business if you use the proceeds of the loan for a trade or business expense. Taxact login tax return taxact login page taxact sign page It does not matter what type of property secures the loan. Taxact login tax return taxact login page taxact sign page You can deduct interest on a debt only if you meet all the following requirements. Taxact login tax return taxact login page taxact sign page You are legally liable for that debt. Taxact login tax return taxact login page taxact sign page Both you and the lender intend that the debt be repaid. Taxact login tax return taxact login page taxact sign page You and the lender have a true debtor-creditor relationship. Taxact login tax return taxact login page taxact sign page Partial liability. Taxact login tax return taxact login page taxact sign page   If you are liable for part of a business debt, you can deduct only your share of the total interest paid or accrued. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page You and your brother borrow money. Taxact login tax return taxact login page taxact sign page You are liable for 50% of the note. Taxact login tax return taxact login page taxact sign page You use your half of the loan in your business, and you make one-half of the loan payments. Taxact login tax return taxact login page taxact sign page You can deduct your half of the total interest payments as a business deduction. Taxact login tax return taxact login page taxact sign page Mortgage. Taxact login tax return taxact login page taxact sign page   Generally, mortgage interest paid or accrued on real estate you own legally or equitably is deductible. Taxact login tax return taxact login page taxact sign page However, rather than deducting the interest currently, you may have to add it to the cost basis of the property as explained later under Capitalization of Interest. Taxact login tax return taxact login page taxact sign page Statement. Taxact login tax return taxact login page taxact sign page   If you paid $600 or more of mortgage interest (including certain points) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement. Taxact login tax return taxact login page taxact sign page You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. Taxact login tax return taxact login page taxact sign page A governmental unit is a person for purposes of furnishing the statement. Taxact login tax return taxact login page taxact sign page   If you receive a refund of interest you overpaid in an earlier year, this amount will be reported in box 3 of Form 1098. Taxact login tax return taxact login page taxact sign page You cannot deduct this amount. Taxact login tax return taxact login page taxact sign page For information on how to report this refund, see Refunds of interest, later in this chapter. Taxact login tax return taxact login page taxact sign page Expenses paid to obtain a mortgage. Taxact login tax return taxact login page taxact sign page   Certain expenses you pay to obtain a mortgage cannot be deducted as interest. Taxact login tax return taxact login page taxact sign page These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses. Taxact login tax return taxact login page taxact sign page If the property mortgaged is business or income-producing property, you can amortize the costs over the life of the mortgage. Taxact login tax return taxact login page taxact sign page Prepayment penalty. Taxact login tax return taxact login page taxact sign page   If you pay off your mortgage early and pay the lender a penalty for doing this, you can deduct the penalty as interest. Taxact login tax return taxact login page taxact sign page Interest on employment tax deficiency. Taxact login tax return taxact login page taxact sign page   Interest charged on employment taxes assessed on your business is deductible. Taxact login tax return taxact login page taxact sign page Original issue discount (OID). Taxact login tax return taxact login page taxact sign page   OID is a form of interest. Taxact login tax return taxact login page taxact sign page A loan (mortgage or other debt) generally has OID when its proceeds are less than its principal amount. Taxact login tax return taxact login page taxact sign page The OID is the difference between the stated redemption price at maturity and the issue price of the loan. Taxact login tax return taxact login page taxact sign page   A loan's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on it other than qualified stated interest. Taxact login tax return taxact login page taxact sign page Qualified stated interest is stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a single fixed rate. Taxact login tax return taxact login page taxact sign page You generally deduct OID over the term of the loan. Taxact login tax return taxact login page taxact sign page Figure the amount to deduct each year using the constant-yield method, unless the OID on the loan is de minimis. Taxact login tax return taxact login page taxact sign page De minimis OID. Taxact login tax return taxact login page taxact sign page   The OID is de minimis if it is less than one-fourth of 1% (. Taxact login tax return taxact login page taxact sign page 0025) of the stated redemption price of the loan at maturity multiplied by the number of full years from the date of original issue to maturity (the term of the loan). Taxact login tax return taxact login page taxact sign page   If the OID is de minimis, you can choose one of the following ways to figure the amount you can deduct each year. Taxact login tax return taxact login page taxact sign page On a constant-yield basis over the term of the loan. Taxact login tax return taxact login page taxact sign page On a straight-line basis over the term of the loan. Taxact login tax return taxact login page taxact sign page In proportion to stated interest payments. Taxact login tax return taxact login page taxact sign page In its entirety at maturity of the loan. Taxact login tax return taxact login page taxact sign page You make this choice by deducting the OID in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page On January 1, 2013, you took out a $100,000 discounted loan and received $98,500 in proceeds. Taxact login tax return taxact login page taxact sign page The loan will mature on January 1, 2023 (a 10-year term), and the $100,000 principal is payable on that date. Taxact login tax return taxact login page taxact sign page Interest of $10,000 is payable on January 1 of each year, beginning January 1, 2014. Taxact login tax return taxact login page taxact sign page The $1,500 OID on the loan is de minimis because it is less than $2,500 ($100,000 × . Taxact login tax return taxact login page taxact sign page 0025 × 10). Taxact login tax return taxact login page taxact sign page You choose to deduct the OID on a straight-line basis over the term of the loan. Taxact login tax return taxact login page taxact sign page Beginning in 2013, you can deduct $150 each year for 10 years. Taxact login tax return taxact login page taxact sign page Constant-yield method. Taxact login tax return taxact login page taxact sign page   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. Taxact login tax return taxact login page taxact sign page You figure your deduction for the first year using the following steps. Taxact login tax return taxact login page taxact sign page Determine the issue price of the loan. Taxact login tax return taxact login page taxact sign page Generally, this equals the proceeds of the loan. Taxact login tax return taxact login page taxact sign page If you paid points on the loan (as discussed later), the issue price generally is the difference between the proceeds and the points. Taxact login tax return taxact login page taxact sign page Multiply the result in (1) by the yield to maturity. Taxact login tax return taxact login page taxact sign page Subtract any qualified stated interest payments from the result in (2). Taxact login tax return taxact login page taxact sign page This is the OID you can deduct in the first year. Taxact login tax return taxact login page taxact sign page   To figure your deduction in any subsequent year, follow the above steps, except determine the adjusted issue price in step (1). Taxact login tax return taxact login page taxact sign page To get the adjusted issue price, add to the issue price any OID previously deducted. Taxact login tax return taxact login page taxact sign page Then follow steps (2) and (3) above. Taxact login tax return taxact login page taxact sign page   The yield to maturity is generally shown in the literature you receive from your lender. Taxact login tax return taxact login page taxact sign page If you do not have this information, consult your lender or tax advisor. Taxact login tax return taxact login page taxact sign page In general, the yield to maturity is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page The facts are the same as in the previous example, except that you deduct the OID on a constant yield basis over the term of the loan. Taxact login tax return taxact login page taxact sign page The yield to maturity on your loan is 10. Taxact login tax return taxact login page taxact sign page 2467%, compounded annually. Taxact login tax return taxact login page taxact sign page For 2013, you can deduct $93 [($98,500 × . Taxact login tax return taxact login page taxact sign page 102467) − $10,000]. Taxact login tax return taxact login page taxact sign page For 2014, you can deduct $103 [($98,593 × . Taxact login tax return taxact login page taxact sign page 102467) − $10,000]. Taxact login tax return taxact login page taxact sign page Loan or mortgage ends. Taxact login tax return taxact login page taxact sign page   If your loan or mortgage ends, you may be able to deduct any remaining OID in the tax year in which the loan or mortgage ends. Taxact login tax return taxact login page taxact sign page A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. Taxact login tax return taxact login page taxact sign page If you refinance with the original lender, you generally cannot deduct the remaining OID in the year in which the refinancing occurs, but you may be able to deduct it over the term of the new mortgage or loan. Taxact login tax return taxact login page taxact sign page See Interest paid with funds borrowed from original lender under Interest You Cannot Deduct, later. Taxact login tax return taxact login page taxact sign page Points. Taxact login tax return taxact login page taxact sign page   The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a loan or a mortgage. Taxact login tax return taxact login page taxact sign page These charges are also called loan origination fees, maximum loan charges, discount points, or premium charges. Taxact login tax return taxact login page taxact sign page If any of these charges (points) are solely for the use of money, they are interest. Taxact login tax return taxact login page taxact sign page   Because points are prepaid interest, you generally cannot deduct the full amount in the year paid. Taxact login tax return taxact login page taxact sign page However, you can choose to fully deduct points in the year paid if you meet certain tests. Taxact login tax return taxact login page taxact sign page For exceptions to the general rule, see Publication 936. Taxact login tax return taxact login page taxact sign page The points reduce the issue price of the loan and result in original issue discount (OID), deductible as explained in the preceding discussion. Taxact login tax return taxact login page taxact sign page Partial payments on a nontax debt. Taxact login tax return taxact login page taxact sign page   If you make partial payments on a debt (other than a debt owed the IRS), the payments are applied, in general, first to interest and any remainder to principal. Taxact login tax return taxact login page taxact sign page You can deduct only the interest. Taxact login tax return taxact login page taxact sign page This rule does not apply when it can be inferred that the borrower and lender understood that a different allocation of the payments would be made. Taxact login tax return taxact login page taxact sign page Installment purchase. Taxact login tax return taxact login page taxact sign page   If you make an installment purchase of business property, the contract between you and the seller generally provides for the payment of interest. Taxact login tax return taxact login page taxact sign page If no interest or a low rate of interest is charged under the contract, a portion of the stated principal amount payable under the contract may be recharacterized as interest (unstated interest). Taxact login tax return taxact login page taxact sign page The amount recharacterized as interest reduces your basis in the property and increases your interest expense. Taxact login tax return taxact login page taxact sign page For more information on installment sales and unstated interest, see Publication 537. Taxact login tax return taxact login page taxact sign page Interest You Cannot Deduct Certain interest payments cannot be deducted. Taxact login tax return taxact login page taxact sign page In addition, certain other expenses that may seem to be interest but are not, cannot be deducted as interest. Taxact login tax return taxact login page taxact sign page You cannot currently deduct interest that must be capitalized, and you generally cannot deduct personal interest. Taxact login tax return taxact login page taxact sign page Interest paid with funds borrowed from original lender. Taxact login tax return taxact login page taxact sign page   If you use the cash method of accounting, you cannot deduct interest you pay with funds borrowed from the original lender through a second loan, an advance, or any other arrangement similar to a loan. Taxact login tax return taxact login page taxact sign page You can deduct the interest expense once you start making payments on the new loan. Taxact login tax return taxact login page taxact sign page   When you make a payment on the new loan, you first apply the payment to interest and then to the principal. Taxact login tax return taxact login page taxact sign page All amounts you apply to the interest on the first loan are deductible, along with any interest you pay on the second loan, subject to any limits that apply. Taxact login tax return taxact login page taxact sign page Capitalized interest. Taxact login tax return taxact login page taxact sign page   You cannot currently deduct interest you are required to capitalize under the uniform capitalization rules. Taxact login tax return taxact login page taxact sign page See Capitalization of Interest, later. Taxact login tax return taxact login page taxact sign page In addition, if you buy property and pay interest owed by the seller (for example, by assuming the debt and any interest accrued on the property), you cannot deduct the interest. Taxact login tax return taxact login page taxact sign page Add this interest to the basis of the property. Taxact login tax return taxact login page taxact sign page Commitment fees or standby charges. Taxact login tax return taxact login page taxact sign page   Fees you incur to have business funds available on a standby basis, but not for the actual use of the funds, are not deductible as interest payments. Taxact login tax return taxact login page taxact sign page You may be able to deduct them as business expenses. Taxact login tax return taxact login page taxact sign page   If the funds are for inventory or certain property used in your business, the fees are indirect costs and you generally must capitalize them under the uniform capitalization rules. Taxact login tax return taxact login page taxact sign page See Capitalization of Interest, later. Taxact login tax return taxact login page taxact sign page Interest on income tax. Taxact login tax return taxact login page taxact sign page   Interest charged on income tax assessed on your individual income tax return is not a business deduction even though the tax due is related to income from your trade or business. Taxact login tax return taxact login page taxact sign page Treat this interest as a business deduction only in figuring a net operating loss deduction. Taxact login tax return taxact login page taxact sign page Penalties. Taxact login tax return taxact login page taxact sign page   Penalties on underpaid deficiencies and underpaid estimated tax are not interest. Taxact login tax return taxact login page taxact sign page You cannot deduct them. Taxact login tax return taxact login page taxact sign page Generally, you cannot deduct any fines or penalties. Taxact login tax return taxact login page taxact sign page Interest on loans with respect to life insurance policies. Taxact login tax return taxact login page taxact sign page   You generally cannot deduct interest on a debt incurred with respect to any life insurance, annuity, or endowment contract that covers any individual unless that individual is a key person. Taxact login tax return taxact login page taxact sign page   If the policy or contract covers a key person, you can deduct the interest on up to $50,000 of debt for that person. Taxact login tax return taxact login page taxact sign page However, the deduction for any month cannot be more than the interest figured using Moody's Composite Yield on Seasoned Corporate Bonds (formerly known as Moody's Corporate Bond Yield Average-Monthly Average Corporates) (Moody's rate) for that month. Taxact login tax return taxact login page taxact sign page Who is a key person?   A key person is an officer or 20% owner. Taxact login tax return taxact login page taxact sign page However, the number of individuals you can treat as key persons is limited to the greater of the following. Taxact login tax return taxact login page taxact sign page Five individuals. Taxact login tax return taxact login page taxact sign page The lesser of 5% of the total officers and employees of the company or 20 individuals. Taxact login tax return taxact login page taxact sign page Exceptions for pre-June 1997 contracts. Taxact login tax return taxact login page taxact sign page   You can generally deduct the interest if the contract was issued before June 9, 1997, and the covered individual is someone other than an employee, officer, or someone financially interested in your business. Taxact login tax return taxact login page taxact sign page If the contract was purchased before June 21, 1986, you can generally deduct the interest no matter who is covered by the contract. Taxact login tax return taxact login page taxact sign page Interest allocated to unborrowed policy cash value. Taxact login tax return taxact login page taxact sign page   Corporations and partnerships generally cannot deduct any interest expense allocable to unborrowed cash values of life insurance, annuity, or endowment contracts. Taxact login tax return taxact login page taxact sign page This rule applies to contracts issued after June 8, 1997, that cover someone other than an officer, director, employee, or 20% owner. Taxact login tax return taxact login page taxact sign page For more information, see section 264(f) of the Internal Revenue Code. Taxact login tax return taxact login page taxact sign page Capitalization of Interest Under the uniform capitalization rules, you generally must capitalize interest on debt equal to your expenditures to produce real property or certain tangible personal property. Taxact login tax return taxact login page taxact sign page The property must be produced by you for use in your trade or business or for sale to customers. Taxact login tax return taxact login page taxact sign page You cannot capitalize interest related to property that you acquire in any other manner. Taxact login tax return taxact login page taxact sign page Interest you paid or incurred during the production period must be capitalized if the property produced is designated property. Taxact login tax return taxact login page taxact sign page Designated property is any of the following. Taxact login tax return taxact login page taxact sign page Real property. Taxact login tax return taxact login page taxact sign page Tangible personal property with a class life of 20 years or more. Taxact login tax return taxact login page taxact sign page Tangible personal property with an estimated production period of more than 2 years. Taxact login tax return taxact login page taxact sign page Tangible personal property with an estimated production period of more than 1 year if the estimated cost of production is more than $1 million. Taxact login tax return taxact login page taxact sign page Property you produce. Taxact login tax return taxact login page taxact sign page   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow it. Taxact login tax return taxact login page taxact sign page Treat property produced for you under a contract as produced by you up to the amount you pay or incur for the property. Taxact login tax return taxact login page taxact sign page Carrying charges. Taxact login tax return taxact login page taxact sign page   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. Taxact login tax return taxact login page taxact sign page You can choose to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. Taxact login tax return taxact login page taxact sign page For more information, see chapter 7. Taxact login tax return taxact login page taxact sign page Capitalized interest. Taxact login tax return taxact login page taxact sign page   Treat capitalized interest as a cost of the property produced. Taxact login tax return taxact login page taxact sign page You recover your interest when you sell or use the property. Taxact login tax return taxact login page taxact sign page If the property is inventory, recover capitalized interest through cost of goods sold. Taxact login tax return taxact login page taxact sign page If the property is used in your trade or business, recover capitalized interest through an adjustment to basis, depreciation, amortization, or other method. Taxact login tax return taxact login page taxact sign page Partnerships and S corporations. Taxact login tax return taxact login page taxact sign page   The interest capitalization rules are applied first at the partnership or S corporation level. Taxact login tax return taxact login page taxact sign page The rules are then applied at the partners' or shareholders' level to the extent the partnership or S corporation has insufficient debt to support the production or construction costs. Taxact login tax return taxact login page taxact sign page   If you are a partner or a shareholder, you may have to capitalize interest you incur during the tax year for the production costs of the partnership or S corporation. Taxact login tax return taxact login page taxact sign page You may also have to capitalize interest incurred by the partnership or S corporation for your own production costs. Taxact login tax return taxact login page taxact sign page To properly capitalize interest under these rules, you must be given the required information in an attachment to the Schedule K-1 you receive from the partnership or S corporation. Taxact login tax return taxact login page taxact sign page Additional information. Taxact login tax return taxact login page taxact sign page   The procedures for applying the uniform capitalization rules are beyond the scope of this publication. Taxact login tax return taxact login page taxact sign page For more information, see sections 1. Taxact login tax return taxact login page taxact sign page 263A-8 through 1. Taxact login tax return taxact login page taxact sign page 263A-15 of the regulations and Notice 88-99. Taxact login tax return taxact login page taxact sign page Notice 88-99 is in Cumulative Bulletin 1988-2. Taxact login tax return taxact login page taxact sign page When To Deduct Interest If the uniform capitalization rules, discussed under Capitalization of Interest, earlier, do not apply to you, deduct interest as follows. Taxact login tax return taxact login page taxact sign page Cash method. Taxact login tax return taxact login page taxact sign page   Under the cash method, you can generally deduct only the interest you actually paid during the tax year. Taxact login tax return taxact login page taxact sign page You cannot deduct a promissory note you gave as payment because it is a promise to pay and not an actual payment. Taxact login tax return taxact login page taxact sign page Prepaid interest. Taxact login tax return taxact login page taxact sign page   You generally cannot deduct any interest paid before the year it is due. Taxact login tax return taxact login page taxact sign page Interest paid in advance can be deducted only in the tax year in which it is due. Taxact login tax return taxact login page taxact sign page Discounted loan. Taxact login tax return taxact login page taxact sign page   If interest or a discount is subtracted from your loan proceeds, it is not a payment of interest and you cannot deduct it when you get the loan. Taxact login tax return taxact login page taxact sign page For more information, see Original issue discount (OID) under Interest You Can Deduct, earlier. Taxact login tax return taxact login page taxact sign page Refunds of interest. Taxact login tax return taxact login page taxact sign page   If you pay interest and then receive a refund in the same tax year of any part of the interest, reduce your interest deduction by the refund. Taxact login tax return taxact login page taxact sign page If you receive the refund in a later tax year, include the refund in your income to the extent the deduction for the interest reduced your tax. Taxact login tax return taxact login page taxact sign page Accrual method. Taxact login tax return taxact login page taxact sign page   Under an accrual method, you can deduct only interest that has accrued during the tax year. Taxact login tax return taxact login page taxact sign page Prepaid interest. Taxact login tax return taxact login page taxact sign page   See Prepaid interest, earlier. Taxact login tax return taxact login page taxact sign page Discounted loan. Taxact login tax return taxact login page taxact sign page   See Discounted loan, earlier. Taxact login tax return taxact login page taxact sign page Tax deficiency. Taxact login tax return taxact login page taxact sign page   If you contest a federal income tax deficiency, interest does not accrue until the tax year the final determination of liability is made. Taxact login tax return taxact login page taxact sign page If you do not contest the deficiency, then the interest accrues in the year the tax was asserted and agreed to by you. Taxact login tax return taxact login page taxact sign page   However, if you contest but pay the proposed tax deficiency and interest, and you do not designate the payment as a cash bond, then the interest is deductible in the year paid. Taxact login tax return taxact login page taxact sign page Related person. Taxact login tax return taxact login page taxact sign page   If you use an accrual method, you cannot deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. Taxact login tax return taxact login page taxact sign page The relationship is determined as of the end of the tax year for which the interest would otherwise be deductible. Taxact login tax return taxact login page taxact sign page See section 267 of the Internal Revenue Code for more information. Taxact login tax return taxact login page taxact sign page Below-Market Loans If you receive a below-market gift or demand loan and use the proceeds in your trade or business, you may be able to deduct the forgone interest. Taxact login tax return taxact login page taxact sign page See Treatment of gift and demand loans, later, in this discussion. Taxact login tax return taxact login page taxact sign page A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Taxact login tax return taxact login page taxact sign page A gift or demand loan that is a below-market loan generally is considered an arm's-length transaction in which you, the borrower, are considered as having received both the following. Taxact login tax return taxact login page taxact sign page A loan in exchange for a note that requires the payment of interest at the applicable federal rate. Taxact login tax return taxact login page taxact sign page An additional payment in an amount equal to the forgone interest. Taxact login tax return taxact login page taxact sign page The additional payment is treated as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. Taxact login tax return taxact login page taxact sign page Forgone interest. Taxact login tax return taxact login page taxact sign page   For any period, forgone interest is The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. Taxact login tax return taxact login page taxact sign page Applicable federal rates are published by the IRS each month in the Internal Revenue Bulletin. Taxact login tax return taxact login page taxact sign page Internal Revenue Bulletins are available on the IRS web site at www. Taxact login tax return taxact login page taxact sign page irs. Taxact login tax return taxact login page taxact sign page gov/irb. Taxact login tax return taxact login page taxact sign page You can also contact an IRS office to get these rates. Taxact login tax return taxact login page taxact sign page Loans subject to the rules. Taxact login tax return taxact login page taxact sign page   The rules for below-market loans apply to the following. Taxact login tax return taxact login page taxact sign page Gift loans (below-market loans where the forgone interest is in the nature of a gift). Taxact login tax return taxact login page taxact sign page Compensation-related loans (below-market loans between an employer and an employee or between an independent contractor and a person for whom the contractor provides services). Taxact login tax return taxact login page taxact sign page Corporation-shareholder loans. Taxact login tax return taxact login page taxact sign page Tax avoidance loans (below-market loans where the avoidance of federal tax is one of the main purposes of the interest arrangement). Taxact login tax return taxact login page taxact sign page Loans to qualified continuing care facilities under a continuing care contract (made after October 11, 1985). Taxact login tax return taxact login page taxact sign page   Except as noted in (5) above, these rules apply to demand loans (loans payable in full at any time upon the lender's demand) outstanding after June 6, 1984, and to term loans (loans that are not demand loans) made after that date. Taxact login tax return taxact login page taxact sign page Treatment of gift and demand loans. Taxact login tax return taxact login page taxact sign page   If you receive a below-market gift loan or demand loan, you are treated as receiving an additional payment (as a gift, dividend, etc. Taxact login tax return taxact login page taxact sign page ) equal to the forgone interest on the loan. Taxact login tax return taxact login page taxact sign page You are then treated as transferring this amount back to the lender as interest. Taxact login tax return taxact login page taxact sign page These transfers are considered to occur annually, generally on December 31. Taxact login tax return taxact login page taxact sign page If you use the loan proceeds in your trade or business, you can deduct the forgone interest each year as a business interest expense. Taxact login tax return taxact login page taxact sign page The lender must report it as interest income. Taxact login tax return taxact login page taxact sign page Limit on forgone interest for gift loans of $100,000 or less. Taxact login tax return taxact login page taxact sign page   For gift loans between individuals, forgone interest treated as transferred back to the lender is limited to the borrower's net investment income for the year. Taxact login tax return taxact login page taxact sign page This limit applies if the outstanding loans between the lender and borrower total $100,000 or less. Taxact login tax return taxact login page taxact sign page If the borrower's net investment income is $1,000 or less, it is treated as zero. Taxact login tax return taxact login page taxact sign page This limit does not apply to a loan if the avoidance of any federal tax is one of the main purposes of the interest arrangement. Taxact login tax return taxact login page taxact sign page Treatment of term loans. Taxact login tax return taxact login page taxact sign page   If you receive a below-market term loan other than a gift or demand loan, you are treated as receiving an additional cash payment (as a dividend, etc. Taxact login tax return taxact login page taxact sign page ) on the date the loan is made. Taxact login tax return taxact login page taxact sign page This payment is equal to the loan amount minus the present value, at the applicable federal rate, of all payments due under the loan. Taxact login tax return taxact login page taxact sign page The same amount is treated as original issue discount on the loan. Taxact login tax return taxact login page taxact sign page See Original issue discount (OID) under Interest You Can Deduct, earlier. Taxact login tax return taxact login page taxact sign page Exceptions for loans of $10,000 or less. Taxact login tax return taxact login page taxact sign page   The rules for below-market loans do not apply to any day on which the total outstanding loans between the borrower and lender is $10,000 or less. Taxact login tax return taxact login page taxact sign page This exception applies only to the following. Taxact login tax return taxact login page taxact sign page Gift loans between individuals if the loan is not directly used to buy or carry income-producing assets. Taxact login tax return taxact login page taxact sign page Compensation-related loans or corporation-shareholder loans if the avoidance of any federal tax is not a principal purpose of the interest arrangement. Taxact login tax return taxact login page taxact sign page This exception does not apply to a term loan described in (2) above that was previously subject to the below-market loan rules. Taxact login tax return taxact login page taxact sign page Those rules will continue to apply even if the outstanding balance is reduced to $10,000 or less. Taxact login tax return taxact login page taxact sign page Exceptions for loans without significant tax effect. Taxact login tax return taxact login page taxact sign page   The following loans are specifically exempted from the rules for below-market loans because their interest arrangements do not have a significant effect on the federal tax liability of the borrower or the lender. Taxact login tax return taxact login page taxact sign page Loans made available by lenders to the general public on the same terms and conditions that are consistent with the lender's customary business practices. Taxact login tax return taxact login page taxact sign page Loans subsidized by a federal, state, or municipal government that are made available under a program of general application to the public. Taxact login tax return taxact login page taxact sign page Certain employee-relocation loans. Taxact login tax return taxact login page taxact sign page Certain loans to or from a foreign person, unless the interest income would be effectively connected with the conduct of a U. Taxact login tax return taxact login page taxact sign page S. Taxact login tax return taxact login page taxact sign page trade or business and not exempt from U. Taxact login tax return taxact login page taxact sign page S. Taxact login tax return taxact login page taxact sign page tax under an income tax treaty. Taxact login tax return taxact login page taxact sign page Any other loan if the taxpayer can show that the interest arrangement has no significant effect on the federal tax liability of the lender or the borrower. Taxact login tax return taxact login page taxact sign page Whether an interest arrangement has a significant effect on the federal tax liability of the lender or the borrower will be determined by all the facts and circumstances. Taxact login tax return taxact login page taxact sign page Consider all the following factors. Taxact login tax return taxact login page taxact sign page Whether items of income and deduction generated by the loan offset each other. Taxact login tax return taxact login page taxact sign page The amount of the items. Taxact login tax return taxact login page taxact sign page The cost of complying with the below-market loan provisions if they were to apply. Taxact login tax return taxact login page taxact sign page Any reasons, other than taxes, for structuring the transaction as a below-market loan. Taxact login tax return taxact login page taxact sign page Exception for loans to qualified continuing care facilities. Taxact login tax return taxact login page taxact sign page   The below-market interest rules do not apply to a loan owed by a qualified continuing care facility under a continuing care contract if the lender or lender's spouse is age 62 or older by the end of the calendar year. Taxact login tax return taxact login page taxact sign page A qualified continuing care facility is one or more facilities (excluding nursing homes) meeting the requirements listed below. Taxact login tax return taxact login page taxact sign page Designed to provide services under continuing care contracts (defined below). Taxact login tax return taxact login page taxact sign page Includes an independent living unit, and either an assisted living or nursing facility, or both. Taxact login tax return taxact login page taxact sign page Substantially all of the independent living unit residents are covered by continuing care contracts. Taxact login tax return taxact login page taxact sign page A continuing care contract is a written contract between an individual and a qualified continuing care facility that includes all of the following conditions. Taxact login tax return taxact login page taxact sign page The individual or individual's spouse must be entitled to use the facility for the rest of their life or lives. Taxact login tax return taxact login page taxact sign page The individual or individual's spouse will be provided with housing, as appropriate for the health of the individual or individual's spouse in an: independent living unit (which has additional available facilities outside the unit for the provision of meals and other personal care), and assisted living or nursing facility available in the continuing care facility. Taxact login tax return taxact login page taxact sign page The individual or individual's spouse will be provided with assisted living or nursing care available in the continuing care facility, as required for the health of the individual or the individual's spouse. Taxact login tax return taxact login page taxact sign page For more information, see section 7872(h) of the Internal Revenue Code. Taxact login tax return taxact login page taxact sign page Sale or exchange of property. Taxact login tax return taxact login page taxact sign page   Different rules generally apply to a loan connected with the sale or exchange of property. Taxact login tax return taxact login page taxact sign page If the loan does not provide adequate stated interest, part of the principal payment may be considered interest. Taxact login tax return taxact login page taxact sign page However, there are exceptions that may require you to apply the below-market interest rate rules to these loans. Taxact login tax return taxact login page taxact sign page See Unstated Interest and Original Issue Discount (OID) in Publication 537. Taxact login tax return taxact login page taxact sign page More information. Taxact login tax return taxact login page taxact sign page   For more information on below-market loans, see section 7872 of the Internal Revenue Code and section 1. Taxact login tax return taxact login page taxact sign page 7872-5 of the regulations. 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Taxact login tax return taxact login page taxact sign page Publication 526 - Main Content Table of Contents Organizations That Qualify To Receive Deductible ContributionsTypes of Qualified Organizations Contributions You Can DeductContributions From Which You Benefit Expenses Paid for Student Living With You Out-of-Pocket Expenses in Giving Services Expenses of Whaling Captains Contributions You Cannot DeductContributions to Individuals Contributions to Nonqualified Organizations Contributions From Which You Benefit Value of Time or Services Personal Expenses Appraisal Fees Contributions to Donor-Advised Funds Partial Interest in Property Contributions of PropertyContributions Subject to Special Rules Determining Fair Market Value Giving Property That Has Decreased in Value Giving Property That Has Increased in Value Penalty When To DeductChecks. Taxact login tax return taxact login page taxact sign page Text message. Taxact login tax return taxact login page taxact sign page Credit card. Taxact login tax return taxact login page taxact sign page Pay-by-phone account. Taxact login tax return taxact login page taxact sign page Stock certificate. Taxact login tax return taxact login page taxact sign page Promissory note. Taxact login tax return taxact login page taxact sign page Option. Taxact login tax return taxact login page taxact sign page Borrowed funds. Taxact login tax return taxact login page taxact sign page Conditional gift. Taxact login tax return taxact login page taxact sign page Limits on Deductions50% Limit 30% Limit Special 30% Limit for Capital Gain Property 20% Limit Special 50% Limit for Qualified Conservation Contributions How To Figure Your Deduction When Limits Apply Records To KeepCash Contributions Noncash Contributions Out-of-Pocket Expenses How To ReportReporting expenses for student living with you. Taxact login tax return taxact login page taxact sign page Total deduction over $500. Taxact login tax return taxact login page taxact sign page Deduction over $5,000 for one item. Taxact login tax return taxact login page taxact sign page Vehicle donations. Taxact login tax return taxact login page taxact sign page Clothing and household items not in good used condition. Taxact login tax return taxact login page taxact sign page Easement on building in historic district. Taxact login tax return taxact login page taxact sign page Deduction over $500,000. Taxact login tax return taxact login page taxact sign page How To Get Tax HelpLow Income Taxpayer Clinics Organizations That Qualify To Receive Deductible Contributions You can deduct your contributions only if you make them to a qualified organization. Taxact login tax return taxact login page taxact sign page Most organizations, other than churches and governments, must apply to the IRS to become a qualified organization. Taxact login tax return taxact login page taxact sign page How to check whether an organization can receive deductible charitable contributions. Taxact login tax return taxact login page taxact sign page   You can ask any organization whether it is a qualified organization, and most will be able to tell you. Taxact login tax return taxact login page taxact sign page Or go to IRS. Taxact login tax return taxact login page taxact sign page gov. Taxact login tax return taxact login page taxact sign page Click on “Tools” and then on “Exempt Organizations Select Check” (www. Taxact login tax return taxact login page taxact sign page irs. Taxact login tax return taxact login page taxact sign page gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check). Taxact login tax return taxact login page taxact sign page This online tool will enable you to search for qualified organizations. Taxact login tax return taxact login page taxact sign page You can also call the IRS to find out if an organization is qualified. Taxact login tax return taxact login page taxact sign page Call 1-877-829-5500. Taxact login tax return taxact login page taxact sign page People who are deaf, hard of hearing, or have a speech disability and who have access to TTY/TDD equipment can call 1-800-829-4059. Taxact login tax return taxact login page taxact sign page Deaf or hard of hearing individuals can also contact the IRS through relay services such as the Federal Relay Service at www. Taxact login tax return taxact login page taxact sign page gsa. Taxact login tax return taxact login page taxact sign page gov/fedrelay. Taxact login tax return taxact login page taxact sign page Types of Qualified Organizations Generally, only the following types of organizations can be qualified organizations. Taxact login tax return taxact login page taxact sign page 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). Taxact login tax return taxact login page taxact sign page It must, however, be organized and operated only for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. Taxact login tax return taxact login page taxact sign page Certain organizations that foster national or international amateur sports competition also qualify. Taxact login tax return taxact login page taxact sign page War veterans' organizations, including posts, auxiliaries, trusts, or foundations, organized in the United States or any of its possessions (including Puerto Rico). Taxact login tax return taxact login page taxact sign page Domestic fraternal societies, orders, and associations operating under the lodge system. Taxact login tax return taxact login page taxact sign page (Your contribution to this type of organization is deductible only if it is to be used solely for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. Taxact login tax return taxact login page taxact sign page ) Certain nonprofit cemetery companies or corporations. Taxact login tax return taxact login page taxact sign page (Your contribution to this type of organization is not deductible if it can be used for the care of a specific lot or mausoleum crypt. Taxact login tax return taxact login page taxact sign page ) The United States or any state, the District of Columbia, a U. Taxact login tax return taxact login page taxact sign page S. Taxact login tax return taxact login page taxact sign page possession (including Puerto Rico), a political subdivision of a state or U. Taxact login tax return taxact login page taxact sign page S. Taxact login tax return taxact login page taxact sign page possession, or an Indian tribal government or any of its subdivisions that perform substantial government functions. Taxact login tax return taxact login page taxact sign page (Your contribution to this type of organization is deductible only if it is to be used solely for public purposes. Taxact login tax return taxact login page taxact sign page ) Example 1. Taxact login tax return taxact login page taxact sign page You contribute cash to your city's police department to be used as a reward for information about a crime. Taxact login tax return taxact login page taxact sign page The city police department is a qualified organization, and your contribution is for a public purpose. Taxact login tax return taxact login page taxact sign page You can deduct your contribution. Taxact login tax return taxact login page taxact sign page Example 2. Taxact login tax return taxact login page taxact sign page You make a voluntary contribution to the social security trust fund, not earmarked for a specific account. Taxact login tax return taxact login page taxact sign page Because the trust fund is part of the U. Taxact login tax return taxact login page taxact sign page S. Taxact login tax return taxact login page taxact sign page Government, you contributed to a qualified organization. Taxact login tax return taxact login page taxact sign page You can deduct your contribution. Taxact login tax return taxact login page taxact sign page Examples. Taxact login tax return taxact login page taxact sign page   The following list gives some examples of qualified organizations. Taxact login tax return taxact login page taxact sign page Churches, a convention or association of churches, temples, synagogues, mosques, and other religious organizations. Taxact login tax return taxact login page taxact sign page Most nonprofit charitable organizations such as the American Red Cross and the United Way. Taxact login tax return taxact login page taxact sign page Most nonprofit educational organizations, including the Boy Scouts of America, Girl Scouts of America, colleges, and museums. Taxact login tax return taxact login page taxact sign page This also includes nonprofit daycare centers that provide childcare to the general public if substantially all the childcare is provided to enable parents and guardians to be gainfully employed. Taxact login tax return taxact login page taxact sign page However, if your contribution is a substitute for tuition or other enrollment fee, it is not deductible as a charitable contribution, as explained later under Contributions You Cannot Deduct . Taxact login tax return taxact login page taxact sign page Nonprofit hospitals and medical research organizations. Taxact login tax return taxact login page taxact sign page Utility company emergency energy programs, if the utility company is an agent for a charitable organization that assists individuals with emergency energy needs. Taxact login tax return taxact login page taxact sign page Nonprofit volunteer fire companies. Taxact login tax return taxact login page taxact sign page Nonprofit organizations that develop and maintain public parks and recreation facilities. Taxact login tax return taxact login page taxact sign page Civil defense organizations. Taxact login tax return taxact login page taxact sign page Canadian charities. Taxact login tax return taxact login page taxact sign page   You may be able to deduct contributions to certain Canadian charitable organizations covered under an income tax treaty with Canada. Taxact login tax return taxact login page taxact sign page To deduct your contribution to a Canadian charity, you generally must have income from sources in Canada. Taxact login tax return taxact login page taxact sign page See Publication 597, Information on the United States-Canada Income Tax Treaty, for information on how to figure your deduction. Taxact login tax return taxact login page taxact sign page Mexican charities. Taxact login tax return taxact login page taxact sign page   Under the U. Taxact login tax return taxact login page taxact sign page S. Taxact login tax return taxact login page taxact sign page -Mexico income tax treaty, a contribution to a Mexican charitable organization may be deductible, but only if and to the extent the contribution would have been treated as a charitable contribution to a public charity created or organized under U. Taxact login tax return taxact login page taxact sign page S. Taxact login tax return taxact login page taxact sign page law. Taxact login tax return taxact login page taxact sign page To deduct your contribution to a Mexican charity, you must have income from sources in Mexico. Taxact login tax return taxact login page taxact sign page The limits described in Limits on Deductions , later, apply and are figured using your income from Mexican sources. Taxact login tax return taxact login page taxact sign page Israeli charities. Taxact login tax return taxact login page taxact sign page   Under the U. Taxact login tax return taxact login page taxact sign page S. Taxact login tax return taxact login page taxact sign page -Israel income tax treaty, a contribution to an Israeli charitable organization is deductible if and to the extent the contribution would have been treated as a charitable contribution if the organization had been created or organized under U. Taxact login tax return taxact login page taxact sign page S. Taxact login tax return taxact login page taxact sign page law. Taxact login tax return taxact login page taxact sign page To deduct your contribution to an Israeli charity, you must have income from sources in Israel. Taxact login tax return taxact login page taxact sign page The limits described in Limits on Deductions , later, apply. Taxact login tax return taxact login page taxact sign page The deduction is also limited to 25% of your adjusted gross income from Israeli sources. Taxact login tax return taxact login page taxact sign page Contributions You Can Deduct Generally, you can deduct contributions of money or property you make to, or for the use of, a qualified organization. Taxact login tax return taxact login page taxact sign page A 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. Taxact login tax return taxact login page taxact sign page The contributions must be made to a qualified organization and not set aside for use by a specific person. Taxact login tax return taxact login page taxact sign page 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. Taxact login tax return taxact login page taxact sign page See Contributions of Property , later. Taxact login tax return taxact login page taxact sign page Your deduction for charitable contributions generally cannot be more than 50% of your adjusted gross income (AGI), but in some cases 20% and 30% limits may apply. Taxact login tax return taxact login page taxact sign page In addition, the total of your charitable contributions deduction and certain other itemized deductions may be limited. Taxact login tax return taxact login page taxact sign page See Limits on Deductions , later. Taxact login tax return taxact login page taxact sign page Table 1 in this publication gives examples of contributions you can and cannot deduct. Taxact login tax return taxact login page taxact sign page Contributions From Which You Benefit If you receive a benefit as a result of making a contribution to a qualified organization, you can deduct only the amount of your contribution that is more than the value of the benefit you receive. Taxact login tax return taxact login page taxact sign page Also see Contributions From Which You Benefit under Contributions You Cannot Deduct, later. Taxact login tax return taxact login page taxact sign page If you pay more than fair market value to a qualified organization for goods or services, the excess may be a charitable contribution. Taxact login tax return taxact login page taxact sign page For the excess amount to qualify, you must pay it with the intent to make a charitable contribution. Taxact login tax return taxact login page taxact sign page Example 1. Taxact login tax return taxact login page taxact sign page You pay $65 for a ticket to a dinner-dance at a church. Taxact login tax return taxact login page taxact sign page Your entire $65 payment goes to the church. Taxact login tax return taxact login page taxact sign page The ticket to the dinner-dance has a fair market value of $25. Taxact login tax return taxact login page taxact sign page When you buy your ticket, you know its value is less than your payment. Taxact login tax return taxact login page taxact sign page To figure the amount of your charitable contribution, subtract the value of the benefit you receive ($25) from your total payment ($65). Taxact login tax return taxact login page taxact sign page You can deduct $40 as a charitable contribution to the church. Taxact login tax return taxact login page taxact sign page Example 2. Taxact login tax return taxact login page taxact sign page At a fundraising auction conducted by a charity, you pay $600 for a week's stay at a beach house. Taxact login tax return taxact login page taxact sign page The amount you pay is no more than the fair rental value. Taxact login tax return taxact login page taxact sign page You have not made a deductible charitable contribution. Taxact login tax return taxact login page taxact sign page Athletic events. Taxact login tax return taxact login page taxact sign page   If you make a payment to, or for the benefit of, a college or university and, as a result, you receive the right to buy tickets to an athletic event in the athletic stadium of the college or university, you can deduct 80% of the payment as a charitable contribution. Taxact login tax return taxact login page taxact sign page   If any part of your payment is for tickets (rather than the right to buy tickets), that part is not deductible. Taxact login tax return taxact login page taxact sign page Subtract the price of the tickets from your payment. Taxact login tax return taxact login page taxact sign page You can deduct 80% of the remaining amount as a charitable contribution. Taxact login tax return taxact login page taxact sign page Example 1. Taxact login tax return taxact login page taxact sign page You pay $300 a year for membership in a university's athletic scholarship program. Taxact login tax return taxact login page taxact sign page The only benefit of membership is that you have the right to buy one season ticket for a seat in a designated area of the stadium at the university's home football games. Taxact login tax return taxact login page taxact sign page You can deduct $240 (80% of $300) as a charitable contribution. Taxact login tax return taxact login page taxact sign page Example 2. Taxact login tax return taxact login page taxact sign page The facts are the same as in Example 1 except your $300 payment includes the purchase of one season ticket for the stated ticket price of $120. Taxact login tax return taxact login page taxact sign page You must subtract the usual price of a ticket ($120) from your $300 payment. Taxact login tax return taxact login page taxact sign page The result is $180. Taxact login tax return taxact login page taxact sign page Your deductible charitable contribution is $144 (80% of $180). Taxact login tax return taxact login page taxact sign page Charity benefit events. Taxact login tax return taxact login page taxact sign page   If you pay a qualified organization more than fair market value for the right to attend a charity ball, banquet, show, sporting event, or other benefit event, you can deduct only the amount that is more than the value of the privileges or other benefits you receive. Taxact login tax return taxact login page taxact sign page   If there is an established charge for the event, that charge is the value of your benefit. Taxact login tax return taxact login page taxact sign page If there is no established charge, the reasonable value of the right to attend the event is the value of your benefit. Taxact login tax return taxact login page taxact sign page Whether you use the tickets or other privileges has no effect on the amount you can deduct. Taxact login tax return taxact login page taxact sign page However, if you return the ticket to the qualified organization for resale, you can deduct the entire amount you paid for the ticket. Taxact login tax return taxact login page taxact sign page    Even if the ticket or other evidence of payment indicates that the payment is a “contribution,” this does not mean you can deduct the entire amount. Taxact login tax return taxact login page taxact sign page If the ticket shows the price of admission and the amount of the contribution, you can deduct the contribution amount. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page You pay $40 to see a special showing of a movie for the benefit of a qualified organization. Taxact login tax return taxact login page taxact sign page Printed on the ticket is “Contribution–$40. Taxact login tax return taxact login page taxact sign page ” If the regular price for the movie is $8, your contribution is $32 ($40 payment − $8 regular price). Taxact login tax return taxact login page taxact sign page Membership fees or dues. Taxact login tax return taxact login page taxact sign page   You may be able to deduct membership fees or dues you pay to a qualified organization. Taxact login tax return taxact login page taxact sign page However, you can deduct only the amount that is more than the value of the benefits you receive. Taxact login tax return taxact login page taxact sign page   You cannot deduct dues, fees, or assessments paid to country clubs and other social organizations. Taxact login tax return taxact login page taxact sign page They are not qualified organizations. Taxact login tax return taxact login page taxact sign page Certain membership benefits can be disregarded. Taxact login tax return taxact login page taxact sign page   Both you and the organization can disregard the following membership benefits if you get them in return for an annual payment of $75 or less. Taxact login tax return taxact login page taxact sign page Any rights or privileges, other than those discussed under Athletic events , earlier, that you can use frequently while you are a member, such as: Free or discounted admission to the organization's facilities or events, Free or discounted parking, Preferred access to goods or services, and Discounts on the purchase of goods and services. Taxact login tax return taxact login page taxact sign page Admission, while you are a member, to events open only to members of the organization if the organization reasonably projects that the cost per person (excluding any allocated overhead) is not more than $10. Taxact login tax return taxact login page taxact sign page 20. Taxact login tax return taxact login page taxact sign page Token items. Taxact login tax return taxact login page taxact sign page   You do not have to reduce your contribution by the value of any benefit you receive if both of the following are true. Taxact login tax return taxact login page taxact sign page You receive only a small item or other benefit of token value. Taxact login tax return taxact login page taxact sign page The qualified organization correctly determines that the value of the item or benefit you received is not substantial and informs you that you can deduct your payment in full. Taxact login tax return taxact login page taxact sign page The organization determines whether the value of an item or benefit is substantial by using Revenue Procedures 90-12 and 92-49 and the inflation adjustment in Revenue Procedure 2012–41. Taxact login tax return taxact login page taxact sign page Written statement. Taxact login tax return taxact login page taxact sign page   A qualified organization must give you a written statement if you make a payment of more than $75 that is partly a contribution and partly for goods or services. Taxact login tax return taxact login page taxact sign page The statement must say you can deduct only the amount of your payment that is more than the value of the goods or services you received. Taxact login tax return taxact login page taxact sign page It must also give you a good faith estimate of the value of those goods or services. Taxact login tax return taxact login page taxact sign page   The organization can give you the statement either when it solicits or when it receives the payment from you. Taxact login tax return taxact login page taxact sign page Exception. Taxact login tax return taxact login page taxact sign page   An organization will not have to give you this statement if one of the following is true. Taxact login tax return taxact login page taxact sign page The organization is: A governmental organization described in (5) under Types of Qualified Organizations , earlier, or An organization formed only for religious purposes, and the only benefit you receive is an intangible religious benefit (such as admission to a religious ceremony) that generally is not sold in commercial transactions outside the donative context. Taxact login tax return taxact login page taxact sign page You receive only items whose value is not substantial as described under Token items , earlier. Taxact login tax return taxact login page taxact sign page You receive only membership benefits that can be disregarded, as described under Membership fees or dues , earlier. Taxact login tax return taxact login page taxact sign page Expenses Paid for Student Living With You You may be able to deduct some expenses of having a student live with you. Taxact login tax return taxact login page taxact sign page You can deduct qualifying expenses for a foreign or American student who: Lives in your home under a written agreement between you and a qualified organization (defined later) as part of a program of the organization to provide educational opportunities for the student, Is not your relative (defined later) or dependent (also defined later), and Is a full-time student in the twelfth or any lower grade at a school in the United States. Taxact login tax return taxact login page taxact sign page You can deduct up to $50 a month for each full calendar month the student lives with you. Taxact login tax return taxact login page taxact sign page Any month when conditions (1) through (3) above are met for 15 or more days counts as a full month. Taxact login tax return taxact login page taxact sign page Qualified organization. Taxact login tax return taxact login page taxact sign page   For these purposes, a qualified organization can be any of the organizations described earlier under Types of Qualified Organizations , except those in (4) and (5). Taxact login tax return taxact login page taxact sign page For example, if you are providing a home for a student as part of a state or local government program, you cannot deduct your expenses as charitable contributions. Taxact login tax return taxact login page taxact sign page But see Foster parents under Out-of-Pocket Expenses in Giving Services, later, if you provide the home as a foster parent. Taxact login tax return taxact login page taxact sign page Relative. Taxact login tax return taxact login page taxact sign page   The term “relative” means any of the following persons. Taxact login tax return taxact login page taxact sign page Your child, stepchild, foster child, or a descendant of any of them (for example, your grandchild). Taxact login tax return taxact login page taxact sign page A legally adopted child is considered your child. Taxact login tax return taxact login page taxact sign page Your brother, sister, half brother, half sister, stepbrother, or stepsister. Taxact login tax return taxact login page taxact sign page Your father, mother, grandparent, or other direct ancestor. Taxact login tax return taxact login page taxact sign page Your stepfather or stepmother. Taxact login tax return taxact login page taxact sign page A son or daughter of your brother or sister. Taxact login tax return taxact login page taxact sign page A brother or sister of your father or mother. Taxact login tax return taxact login page taxact sign page Your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. Taxact login tax return taxact login page taxact sign page Dependent. Taxact login tax return taxact login page taxact sign page   For this purpose, the term “dependent” means: A person you can claim as a dependent, or A person you could have claimed as a dependent except that: He or she received gross income of $3,900 or more, He or she filed a joint return, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. Taxact login tax return taxact login page taxact sign page    Foreign students brought to this country under a qualified international education exchange program and placed in American homes for a temporary period generally are not U. Taxact login tax return taxact login page taxact sign page S. Taxact login tax return taxact login page taxact sign page residents and cannot be claimed as dependents. Taxact login tax return taxact login page taxact sign page Qualifying expenses. Taxact login tax return taxact login page taxact sign page   You may be able to deduct the cost of books, tuition, food, clothing, transportation, medical and dental care, entertainment, and other amounts you actually spend for the well-being of the student. Taxact login tax return taxact login page taxact sign page Expenses that do not qualify. Taxact login tax return taxact login page taxact sign page   You cannot deduct depreciation on your home, the fair market value of lodging, and similar items not considered amounts actually spent by you. Taxact login tax return taxact login page taxact sign page Nor can you deduct general household expenses, such as taxes, insurance, and repairs. Taxact login tax return taxact login page taxact sign page Reimbursed expenses. Taxact login tax return taxact login page taxact sign page   In most cases, you cannot claim a charitable contribution deduction if you are compensated or reimbursed for any part of the costs of having a student live with you. Taxact login tax return taxact login page taxact sign page However, you may be able to claim a charitable contribution deduction for the unreimbursed portion of your expenses if you are reimbursed only for an extraordinary or one-time item, such as a hospital bill or vacation trip, you paid in advance at the request of the student's parents or the sponsoring organization. Taxact login tax return taxact login page taxact sign page Mutual exchange program. Taxact login tax return taxact login page taxact sign page   You cannot deduct the costs of a foreign student living in your home under a mutual exchange program through which your child will live with a family in a foreign country. Taxact login tax return taxact login page taxact sign page Reporting expenses. Taxact login tax return taxact login page taxact sign page   For a list of what you must file with your return if you deduct expenses for a student living with you, see Reporting expenses for student living with you under How To Report, later. Taxact login tax return taxact login page taxact sign page Out-of-Pocket Expenses in Giving Services Table 2. Taxact login tax return taxact login page taxact sign page Volunteers' Questions and Answers If you volunteer for a qualified organization, the following questions and answers may apply to you. Taxact login tax return taxact login page taxact sign page All of the rules explained in this publication also apply. Taxact login tax return taxact login page taxact sign page See, in particular, Out-of-Pocket Expenses in Giving Services . Taxact login tax return taxact login page taxact sign page Question Answer I volunteer 6 hours a week in the office of a qualified organization. Taxact login tax return taxact login page taxact sign page The receptionist is paid $10 an hour for the same work. Taxact login tax return taxact login page taxact sign page Can I deduct $60 a week for my time? No, you cannot deduct the value of your time or services. Taxact login tax return taxact login page taxact sign page  The office is 30 miles from my home. Taxact login tax return taxact login page taxact sign page Can I deduct any of my car expenses for these trips? Yes, you can deduct the costs of gas and oil that are directly related to getting to and from the place where you volunteer. Taxact login tax return taxact login page taxact sign page If you do not want to figure your actual costs, you can deduct 14 cents for each mile. Taxact login tax return taxact login page taxact sign page I volunteer as a Red Cross nurse's aide at a hospital. Taxact login tax return taxact login page taxact sign page Can I deduct the cost of the uniforms I must wear? Yes, you can deduct the cost of buying and cleaning your uniforms if the hospital is a qualified organization, the uniforms are not suitable for everyday use, and you must wear them when volunteering. Taxact login tax return taxact login page taxact sign page I pay a babysitter to watch my children while I volunteer for a qualified organization. Taxact login tax return taxact login page taxact sign page Can I deduct these costs? No, you cannot deduct payments for childcare expenses as a charitable contribution, even if you would be unable to volunteer without childcare. Taxact login tax return taxact login page taxact sign page (If you have childcare expenses so you can work for pay, see Publication 503, Child and Dependent Care Expenses. Taxact login tax return taxact login page taxact sign page ) Although you cannot deduct the value of your services given to a qualified organization, you may be able to deduct some amounts you pay in giving services to a qualified organization. Taxact login tax return taxact login page taxact sign page The amounts must be: Unreimbursed, Directly connected with the services, Expenses you had only because of the services you gave, and Not personal, living, or family expenses. Taxact login tax return taxact login page taxact sign page Table 2 contains questions and answers that apply to some individuals who volunteer their services. Taxact login tax return taxact login page taxact sign page Underprivileged youths selected by charity. Taxact login tax return taxact login page taxact sign page   You can deduct reasonable unreimbursed out-of-pocket expenses you pay to allow underprivileged youths to attend athletic events, movies, or dinners. Taxact login tax return taxact login page taxact sign page The youths must be selected by a charitable organization whose goal is to reduce juvenile delinquency. Taxact login tax return taxact login page taxact sign page Your own similar expenses in accompanying the youths are not deductible. Taxact login tax return taxact login page taxact sign page Conventions. Taxact login tax return taxact login page taxact sign page   If a qualified organization selects you to attend a convention as its representative, you can deduct your unreimbursed expenses for travel, including reasonable amounts for meals and lodging, while away from home overnight for the convention. Taxact login tax return taxact login page taxact sign page However, see Travel , later. Taxact login tax return taxact login page taxact sign page   You cannot deduct personal expenses for sightseeing, fishing parties, theater tickets, or nightclubs. Taxact login tax return taxact login page taxact sign page You also cannot deduct travel, meals and lodging, and other expenses for your spouse or children. Taxact login tax return taxact login page taxact sign page   You cannot deduct your travel expenses in attending a church convention if you go only as a member of your church rather than as a chosen representative. Taxact login tax return taxact login page taxact sign page You can, however, deduct unreimbursed expenses that are directly connected with giving services for your church during the convention. Taxact login tax return taxact login page taxact sign page Uniforms. Taxact login tax return taxact login page taxact sign page   You can deduct the cost and upkeep of uniforms that are not suitable for everyday use and that you must wear while performing donated services for a charitable organization. Taxact login tax return taxact login page taxact sign page Foster parents. Taxact login tax return taxact login page taxact sign page   You may be able to deduct as a charitable contribution some of the costs of being a foster parent (foster care provider) if you have no profit motive in providing the foster care and are not, in fact, making a profit. Taxact login tax return taxact login page taxact sign page A qualified organization must select the individuals you take into your home for foster care. Taxact login tax return taxact login page taxact sign page   You can deduct expenses that meet both of the following requirements. Taxact login tax return taxact login page taxact sign page They are unreimbursed out-of-pocket expenses to feed, clothe, and care for the foster child. Taxact login tax return taxact login page taxact sign page They are incurred primarily to benefit the qualified organization. Taxact login tax return taxact login page taxact sign page   Unreimbursed expenses that you cannot deduct as charitable contributions may be considered support provided by you in determining whether you can claim the foster child as a dependent. Taxact login tax return taxact login page taxact sign page For details, see Publication 501, Exemptions, Standard Deduction, and Filing Information. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page You cared for a foster child because you wanted to adopt her, not to benefit the agency that placed her in your home. Taxact login tax return taxact login page taxact sign page Your unreimbursed expenses are not deductible as charitable contributions. Taxact login tax return taxact login page taxact sign page Church deacon. Taxact login tax return taxact login page taxact sign page   You can deduct as a charitable contribution any unreimbursed expenses you have while in a permanent diaconate program established by your church. Taxact login tax return taxact login page taxact sign page These expenses include the cost of vestments, books, and transportation required in order to serve in the program as either a deacon candidate or an ordained deacon. Taxact login tax return taxact login page taxact sign page Car expenses. Taxact login tax return taxact login page taxact sign page   You can deduct as a charitable contribution any unreimbursed out-of-pocket expenses, such as the cost of gas and oil, directly related to the use of your car in giving services to a charitable organization. Taxact login tax return taxact login page taxact sign page You cannot deduct general repair and maintenance expenses, depreciation, registration fees, or the costs of tires or insurance. Taxact login tax return taxact login page taxact sign page   If you do not want to deduct your actual expenses, you can use a standard mileage rate of 14 cents a mile to figure your contribution. Taxact login tax return taxact login page taxact sign page   You can deduct parking fees and tolls whether you use your actual expenses or the standard mileage rate. Taxact login tax return taxact login page taxact sign page   You must keep reliable written records of your car expenses. Taxact login tax return taxact login page taxact sign page For more information, see Car expenses under Records To Keep, later. Taxact login tax return taxact login page taxact sign page Travel. Taxact login tax return taxact login page taxact sign page   Generally, you can claim a charitable contribution deduction for travel expenses necessarily incurred while you are away from home performing services for a charitable organization only if there is no significant element of personal pleasure, recreation, or vacation in the travel. Taxact login tax return taxact login page taxact sign page This applies whether you pay the expenses directly or indirectly. Taxact login tax return taxact login page taxact sign page You are paying the expenses indirectly if you make a payment to the charitable organization and the organization pays for your travel expenses. Taxact login tax return taxact login page taxact sign page   The deduction for travel expenses will not be denied simply because you enjoy providing services to the charitable organization. Taxact login tax return taxact login page taxact sign page Even if you enjoy the trip, you can take a charitable contribution deduction for your travel expenses if you are on duty in a genuine and substantial sense throughout the trip. Taxact login tax return taxact login page taxact sign page However, if you have only nominal duties, or if for significant parts of the trip you do not have any duties, you cannot deduct your travel expenses. Taxact login tax return taxact login page taxact sign page Example 1. Taxact login tax return taxact login page taxact sign page You are a troop leader for a tax-exempt youth group and you take the group on a camping trip. Taxact login tax return taxact login page taxact sign page You are responsible for overseeing the setup of the camp and for providing adult supervision for other activities during the entire trip. Taxact login tax return taxact login page taxact sign page You participate in the activities of the group and enjoy your time with them. Taxact login tax return taxact login page taxact sign page You oversee the breaking of camp and you transport the group home. Taxact login tax return taxact login page taxact sign page You can deduct your travel expenses. Taxact login tax return taxact login page taxact sign page Example 2. Taxact login tax return taxact login page taxact sign page You sail from one island to another and spend 8 hours a day counting whales and other forms of marine life. Taxact login tax return taxact login page taxact sign page The project is sponsored by a charitable organization. Taxact login tax return taxact login page taxact sign page In most circumstances, you cannot deduct your expenses. Taxact login tax return taxact login page taxact sign page Example 3. Taxact login tax return taxact login page taxact sign page You work for several hours each morning on an archeological dig sponsored by a charitable organization. Taxact login tax return taxact login page taxact sign page The rest of the day is free for recreation and sightseeing. Taxact login tax return taxact login page taxact sign page You cannot take a charitable contribution deduction even though you work very hard during those few hours. Taxact login tax return taxact login page taxact sign page Example 4. Taxact login tax return taxact login page taxact sign page You spend the entire day attending a charitable organization's regional meeting as a chosen representative. Taxact login tax return taxact login page taxact sign page In the evening you go to the theater. Taxact login tax return taxact login page taxact sign page You can claim your travel expenses as charitable contributions, but you cannot claim the cost of your evening at the theater. Taxact login tax return taxact login page taxact sign page Daily allowance (per diem). Taxact login tax return taxact login page taxact sign page   If you provide services for a charitable organization and receive a daily allowance to cover reasonable travel expenses, including meals and lodging while away from home overnight, you must include in income any part of the allowance that is more than your deductible travel expenses. Taxact login tax return taxact login page taxact sign page You may be able to deduct any necessary travel expenses that are more than the allowance. Taxact login tax return taxact login page taxact sign page Deductible travel expenses. Taxact login tax return taxact login page taxact sign page   These include: Air, rail, and bus transportation, Out-of-pocket expenses for your car, Taxi fares or other costs of transportation between the airport or station and your hotel, Lodging costs, and The cost of meals. Taxact login tax return taxact login page taxact sign page Because these travel expenses are not business-related, they are not subject to the same limits as business related expenses. Taxact login tax return taxact login page taxact sign page For information on business travel expenses, see Travel in Publication 463, Travel, Entertainment, Gift, and Car Expenses. Taxact login tax return taxact login page taxact sign page Expenses of Whaling Captains You may be able to deduct as a charitable contribution any reasonable and necessary whaling expenses you pay during the year to carry out sanctioned whaling activities. Taxact login tax return taxact login page taxact sign page The deduction is limited to $10,000 a year. Taxact login tax return taxact login page taxact sign page To claim the deduction, you must be recognized by the Alaska Eskimo Whaling Commission as a whaling captain charged with the responsibility of maintaining and carrying out sanctioned whaling activities. Taxact login tax return taxact login page taxact sign page Sanctioned whaling activities are subsistence bowhead whale hunting activities conducted under the management plan of the Alaska Eskimo Whaling Commission. Taxact login tax return taxact login page taxact sign page Whaling expenses include expenses for: Acquiring and maintaining whaling boats, weapons, and gear used in sanctioned whaling activities, Supplying food for the crew and other provisions for carrying out these activities, and Storing and distributing the catch from these activities. Taxact login tax return taxact login page taxact sign page You must keep records showing the time, place, date, amount, and nature of the expenses. Taxact login tax return taxact login page taxact sign page For details, see Revenue Procedure 2006-50, which is on page 944 of Internal Revenue Bulletin 2006-47 at www. Taxact login tax return taxact login page taxact sign page irs. Taxact login tax return taxact login page taxact sign page gov/pub/irs-irbs/irb06-47. Taxact login tax return taxact login page taxact sign page pdf. Taxact login tax return taxact login page taxact sign page Contributions You Cannot Deduct There are some contributions you cannot deduct and others you can deduct only in part. Taxact login tax return taxact login page taxact sign page You cannot deduct as a charitable contribution: A contribution to a specific individual, A contribution to a nonqualified organization, The part of a contribution from which you receive or expect to receive a benefit, The value of your time or services, Your personal expenses, A qualified charitable distribution from an individual retirement arrangement (IRA), Appraisal fees, Certain contributions to donor-advised funds, or Certain contributions of partial interests in property. Taxact login tax return taxact login page taxact sign page Detailed discussions of these items follow. Taxact login tax return taxact login page taxact sign page Contributions to Individuals You cannot deduct contributions to specific individuals, including the following. Taxact login tax return taxact login page taxact sign page Contributions to fraternal societies made for the purpose of paying medical or burial expenses of members. Taxact login tax return taxact login page taxact sign page Contributions to individuals who are needy or worthy. Taxact login tax return taxact login page taxact sign page You cannot deduct these contributions even if you make them to a qualified organization for the benefit of a specific person. Taxact login tax return taxact login page taxact sign page But you can deduct a contribution to a qualified organization that helps needy or worthy individuals if you do not indicate that your contribution is for a specific person. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page You can deduct contributions to a qualified organization for flood relief, hurricane relief, or other disaster relief. Taxact login tax return taxact login page taxact sign page However, you cannot deduct contributions earmarked for relief of a particular individual or family. Taxact login tax return taxact login page taxact sign page Payments to a member of the clergy that can be spent as he or she wishes, such as for personal expenses. Taxact login tax return taxact login page taxact sign page Expenses you paid for another person who provided services to a qualified organization. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page Your son does missionary work. Taxact login tax return taxact login page taxact sign page You pay his expenses. Taxact login tax return taxact login page taxact sign page You cannot claim a deduction for your son's unreimbursed expenses related to his contribution of services. Taxact login tax return taxact login page taxact sign page Payments to a hospital that are for a specific patient's care or for services for a specific patient. Taxact login tax return taxact login page taxact sign page You cannot deduct these payments even if the hospital is operated by a city, state, or other qualified organization. Taxact login tax return taxact login page taxact sign page Contributions to Nonqualified Organizations You cannot deduct contributions to organizations that are not qualified to receive tax-deductible contributions, including the following. Taxact login tax return taxact login page taxact sign page Certain state bar associations if: The bar is not a political subdivision of a state, The bar has private, as well as public, purposes, such as promoting the professional interests of members, and Your contribution is unrestricted and can be used for private purposes. Taxact login tax return taxact login page taxact sign page Chambers of commerce and other business leagues or organizations. Taxact login tax return taxact login page taxact sign page Civic leagues and associations. Taxact login tax return taxact login page taxact sign page Communist organizations. Taxact login tax return taxact login page taxact sign page Country clubs and other social clubs. Taxact login tax return taxact login page taxact sign page Foreign organizations other than certain Canadian, Israeli, or Mexican charitable organizations. Taxact login tax return taxact login page taxact sign page (See Canadian charities , Mexican charities , and Israeli charities under Organizations That Qualify To Receive Deductible Contributions, earlier. Taxact login tax return taxact login page taxact sign page ) Also, you cannot deduct a contribution you made to any qualifying organization if the contribution is earmarked to go to a foreign organization. Taxact login tax return taxact login page taxact sign page However, certain contributions to a qualified organization for use in a program conducted by a foreign charity may be deductible as long as they are not earmarked to go to the foreign charity. Taxact login tax return taxact login page taxact sign page For the contribution to be deductible, the qualified organization must approve the program as furthering its own exempt purposes and must keep control over the use of the contributed funds. Taxact login tax return taxact login page taxact sign page The contribution is also deductible if the foreign charity is only an administrative arm of the qualified organization. Taxact login tax return taxact login page taxact sign page Homeowners' associations. Taxact login tax return taxact login page taxact sign page Labor unions. Taxact login tax return taxact login page taxact sign page But you may be able to deduct union dues as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit, on Schedule A (Form 1040). Taxact login tax return taxact login page taxact sign page See Publication 529, Miscellaneous Deductions. Taxact login tax return taxact login page taxact sign page Political organizations and candidates. Taxact login tax return taxact login page taxact sign page Contributions From Which You Benefit If you receive or expect to receive a financial or economic benefit as a result of making a contribution to a qualified organization, you cannot deduct the part of the contribution that represents the value of the benefit you receive. Taxact login tax return taxact login page taxact sign page See Contributions From Which You Benefit under Contributions You Can Deduct, earlier. Taxact login tax return taxact login page taxact sign page These contributions include the following. Taxact login tax return taxact login page taxact sign page Contributions for lobbying. Taxact login tax return taxact login page taxact sign page This includes amounts you earmark for use in, or in connection with, influencing specific legislation. Taxact login tax return taxact login page taxact sign page Contributions to a retirement home for room, board, maintenance, or admittance. Taxact login tax return taxact login page taxact sign page Also, if the amount of your contribution depends on the type or size of apartment you will occupy, it is not a charitable contribution. Taxact login tax return taxact login page taxact sign page Costs of raffles, bingo, lottery, etc. Taxact login tax return taxact login page taxact sign page You cannot deduct as a charitable contribution amounts you pay to buy raffle or lottery tickets or to play bingo or other games of chance. Taxact login tax return taxact login page taxact sign page For information on how to report gambling winnings and losses, see Deductions Not Subject to the 2% Limit in Publication 529. Taxact login tax return taxact login page taxact sign page Dues to fraternal orders and similar groups. Taxact login tax return taxact login page taxact sign page However, see Membership fees or dues under Contributions From Which You Benefit, earlier. Taxact login tax return taxact login page taxact sign page Tuition, or amounts you pay instead of tuition. Taxact login tax return taxact login page taxact sign page You cannot deduct as a charitable contribution amounts you pay as tuition even if you pay them for children to attend parochial schools or qualifying nonprofit daycare centers. Taxact login tax return taxact login page taxact sign page You also cannot deduct any fixed amount you must pay in addition to, or instead of, tuition to enroll in a private school, even if it is designated as a “donation. Taxact login tax return taxact login page taxact sign page ” Contributions connected with split-dollar insurance arrangements. Taxact login tax return taxact login page taxact sign page You cannot deduct any part of a contribution to a charitable organization if, in connection with the contribution, the organization directly or indirectly pays, has paid, or is expected to pay any premium on any life insurance, annuity, or endowment contract for which you, any member of your family, or any other person chosen by you (other than a qualified charitable organization) is a beneficiary. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page You donate money to a charitable organization. Taxact login tax return taxact login page taxact sign page The charity uses the money to purchase a cash value life insurance policy. Taxact login tax return taxact login page taxact sign page The beneficiaries under the insurance policy include members of your family. Taxact login tax return taxact login page taxact sign page Even though the charity may eventually get some benefit out of the insurance policy, you cannot deduct any part of the donation. Taxact login tax return taxact login page taxact sign page Qualified Charitable Distributions A qualified charitable distribution (QCD) is a distribution made directly by the trustee of your individual retirement arrangement (IRA), other than a SEP or SIMPLE IRA, to certain qualified organizations. Taxact login tax return taxact login page taxact sign page You must have been at least age 70½ when the distribution was made. Taxact login tax return taxact login page taxact sign page Your total QCDs for the year cannot be more than $100,000. Taxact login tax return taxact login page taxact sign page If all the requirements are met, a QCD is nontaxable, but you cannot claim a charitable contribution deduction for a QCD. Taxact login tax return taxact login page taxact sign page See Publication 590, Individual Retirement Arrangements (IRAs), for more information about QCDs. Taxact login tax return taxact login page taxact sign page Value of Time or Services You cannot deduct the value of your time or services, including: Blood donations to the American Red Cross or to blood banks, and The value of income lost while you work as an unpaid volunteer for a qualified organization. Taxact login tax return taxact login page taxact sign page Personal Expenses You cannot deduct personal, living, or family expenses, such as the following items. Taxact login tax return taxact login page taxact sign page The cost of meals you eat while you perform services for a qualified organization, unless it is necessary for you to be away from home overnight while performing the services. Taxact login tax return taxact login page taxact sign page Adoption expenses, including fees paid to an adoption agency and the costs of keeping a child in your home before adoption is final. Taxact login tax return taxact login page taxact sign page However, you may be able to claim a tax credit for these expenses. Taxact login tax return taxact login page taxact sign page Also, you may be able to exclude from your gross income amounts paid or reimbursed by your employer for your adoption expenses. Taxact login tax return taxact login page taxact sign page See Form 8839, Qualified Adoption Expenses, and its instructions, for more information. Taxact login tax return taxact login page taxact sign page You also may be able to claim an exemption for the child. Taxact login tax return taxact login page taxact sign page See Exemptions for Dependents in Publication 501 for more information. Taxact login tax return taxact login page taxact sign page Appraisal Fees You cannot deduct as a charitable contribution any fees you pay to find the fair market value of donated property. Taxact login tax return taxact login page taxact sign page But you can claim them, subject to the 2%-of-adjusted-gross-income limit, as a miscellaneous itemized deduction on Schedule A (Form 1040). Taxact login tax return taxact login page taxact sign page See Deductions Subject to the 2% Limit in Publication 529 for more information. Taxact login tax return taxact login page taxact sign page Contributions to Donor-Advised Funds You cannot deduct a contribution to a donor-advised fund if: The qualified organization that sponsors the fund is a war veterans' organization, a fraternal society, or a nonprofit cemetery company, or You do not have an acknowledgment from that sponsoring organization that it has exclusive legal control over the assets contributed. Taxact login tax return taxact login page taxact sign page There are also other circumstances in which you cannot deduct your contribution to a donor-advised fund. Taxact login tax return taxact login page taxact sign page Generally, a donor-advised fund is a fund or account in which a donor can, because of being a donor, advise the fund how to distribute or invest amounts held in the fund. Taxact login tax return taxact login page taxact sign page For details, see Internal Revenue Code section 170(f)(18). Taxact login tax return taxact login page taxact sign page Partial Interest in Property Generally, you cannot deduct a contribution of less than your entire interest in property. Taxact login tax return taxact login page taxact sign page For details, see Partial Interest in Property under Contributions of Property, later. Taxact login tax return taxact login page taxact sign page Contributions of Property If you contribute property to a qualified organization, the amount of your charitable contribution is generally the fair market value of the property at the time of the contribution. Taxact login tax return taxact login page taxact sign page However, if the property has increased in value, you may have to make some adjustments to the amount of your deduction. Taxact login tax return taxact login page taxact sign page See Giving Property That Has Increased in Value , later. Taxact login tax return taxact login page taxact sign page For information about the records you must keep and the information you must furnish with your return if you donate property, see Records To Keep and How To Report , later. Taxact login tax return taxact login page taxact sign page Contributions Subject to Special Rules Special rules apply if you contribute: Clothing or household items, A car, boat, or airplane, Taxidermy property, Property subject to a debt, A partial interest in property, A fractional interest in tangible personal property, A qualified conservation contribution, A future interest in tangible personal property, Inventory from your business, or A patent or other intellectual property. Taxact login tax return taxact login page taxact sign page These special rules are described next. Taxact login tax return taxact login page taxact sign page Clothing and Household Items You cannot take a deduction for clothing or household items you donate unless the clothing or household items are in good used condition or better. Taxact login tax return taxact login page taxact sign page Exception. Taxact login tax return taxact login page taxact sign page   You can take a deduction for a contribution of an item of clothing or a household item that is not in good used condition or better if you deduct more than $500 for it and include a qualified appraisal of it with your return. Taxact login tax return taxact login page taxact sign page Household items. Taxact login tax return taxact login page taxact sign page   Household items include: Furniture and furnishings, Electronics, Appliances, Linens, and Other similar items. Taxact login tax return taxact login page taxact sign page   Household items do not include: Food, Paintings, antiques, and other objects of art, Jewelry and gems, and Collections. Taxact login tax return taxact login page taxact sign page Fair market value. Taxact login tax return taxact login page taxact sign page   To determine the fair market value of these items, use the rules under Determining Fair Market Value , later. Taxact login tax return taxact login page taxact sign page Cars, Boats, and Airplanes The following rules apply to any donation of a qualified vehicle. Taxact login tax return taxact login page taxact sign page A qualified vehicle is: A car or any motor vehicle manufactured mainly for use on public streets, roads, and highways, A boat, or An airplane. Taxact login tax return taxact login page taxact sign page Deduction more than $500. Taxact login tax return taxact login page taxact sign page   If you donate a qualified vehicle with a claimed fair market value of more than $500, you can deduct the smaller of: The gross proceeds from the sale of the vehicle by the organization, or The vehicle's fair market value on the date of the contribution. Taxact login tax return taxact login page taxact sign page If the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to figure the deductible amount, as described under Giving Property That Has Increased in Value , later. Taxact login tax return taxact login page taxact sign page Form 1098-C. Taxact login tax return taxact login page taxact sign page   You must attach to your return Copy B of the Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, (or other statement containing the same information as Form 1098-C) you received from the organization. Taxact login tax return taxact login page taxact sign page The Form 1098-C (or other statement) will show the gross proceeds from the sale of the vehicle. Taxact login tax return taxact login page taxact sign page   If you e-file your return, you must: Attach Copy B of Form 1098-C to Form 8453, U. Taxact login tax return taxact login page taxact sign page S. Taxact login tax return taxact login page taxact sign page Individual Income Tax Transmittal for an IRS e-file Return, and mail the forms to the IRS, or Include Copy B of Form 1098-C as a pdf attachment if your software program allows it. Taxact login tax return taxact login page taxact sign page   If you do not attach Form 1098-C (or other statement), you cannot deduct your contribution. Taxact login tax return taxact login page taxact sign page    You must get Form 1098-C (or other statement) within 30 days of the sale of the vehicle. Taxact login tax return taxact login page taxact sign page But if exception 1 or 2 (described later) applies, you must get Form 1098-C (or other statement) within 30 days of your donation. Taxact login tax return taxact login page taxact sign page Filing deadline approaching and still no Form 1098-C. Taxact login tax return taxact login page taxact sign page   If the filing deadline is approaching and you still do not have a Form 1098-C, you have two choices. Taxact login tax return taxact login page taxact sign page Request an automatic 6-month extension of time to file your return. Taxact login tax return taxact login page taxact sign page You can get this extension by filing Form 4868, Application for Automatic Extension of Time To File U. Taxact login tax return taxact login page taxact sign page S. Taxact login tax return taxact login page taxact sign page Individual Income Tax Return. Taxact login tax return taxact login page taxact sign page For more information, see the instructions for Form 4868. Taxact login tax return taxact login page taxact sign page File the return on time without claiming the deduction for the qualified vehicle. Taxact login tax return taxact login page taxact sign page After receiving the Form 1098-C, file an amended return, Form 1040X, Amended U. Taxact login tax return taxact login page taxact sign page S. Taxact login tax return taxact login page taxact sign page Individual Income Tax Return, claiming the deduction. Taxact login tax return taxact login page taxact sign page Attach Copy B of Form 1098-C (or other statement) to the amended return. Taxact login tax return taxact login page taxact sign page Exceptions. Taxact login tax return taxact login page taxact sign page   There are two exceptions to the rules just described for deductions of more than $500. Taxact login tax return taxact login page taxact sign page Exception 1—vehicle used or improved by organization. Taxact login tax return taxact login page taxact sign page   If the qualified organization makes a significant intervening use of or material improvement to the vehicle before transferring it, you generally can deduct the vehicle's fair market value at the time of the contribution. Taxact login tax return taxact login page taxact sign page But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. Taxact login tax return taxact login page taxact sign page The Form 1098-C (or other statement) will show whether this exception applies. Taxact login tax return taxact login page taxact sign page    Exception 2—vehicle given or sold to needy individual. Taxact login tax return taxact login page taxact sign page   If the qualified organization will give the vehicle, or sell it for a price well below fair market value, to a needy individual to further the organization's charitable purpose, you generally can deduct the vehicle's fair market value at the time of the contribution. Taxact login tax return taxact login page taxact sign page But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. Taxact login tax return taxact login page taxact sign page The Form 1098-C (or other statement) will show whether this exception applies. Taxact login tax return taxact login page taxact sign page   This exception does not apply if the organization sells the vehicle at auction. Taxact login tax return taxact login page taxact sign page In that case, you cannot deduct the vehicle's fair market value. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page Anita donates a used car to a qualified organization. Taxact login tax return taxact login page taxact sign page She bought it 3 years ago for $9,000. Taxact login tax return taxact login page taxact sign page A used car guide shows the fair market value for this type of car is $6,000. Taxact login tax return taxact login page taxact sign page However, Anita gets a Form 1098-C from the organization showing the car was sold for $2,900. Taxact login tax return taxact login page taxact sign page Neither exception 1 nor exception 2 applies. Taxact login tax return taxact login page taxact sign page If Anita itemizes her deductions, she can deduct $2,900 for her donation. Taxact login tax return taxact login page taxact sign page She must attach Form 1098-C and Form 8283 to her return. Taxact login tax return taxact login page taxact sign page Deduction $500 or less. Taxact login tax return taxact login page taxact sign page   If the qualified organization sells the vehicle for $500 or less and exceptions 1 and 2 do not apply, you can deduct the smaller of: $500, or The vehicle's fair market value on the date of the contribution. Taxact login tax return taxact login page taxact sign page But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. Taxact login tax return taxact login page taxact sign page   If the vehicle's fair market value is at least $250 but not more than $500, you must have a written statement from the qualified organization acknowledging your donation. Taxact login tax return taxact login page taxact sign page The statement must contain the information and meet the tests for an acknowledgment described under Contributions of $250 or More under Records To Keep, later. Taxact login tax return taxact login page taxact sign page Fair market value. Taxact login tax return taxact login page taxact sign page   To determine a vehicle's fair market value, use the rules described under Determining Fair Market Value , later. Taxact login tax return taxact login page taxact sign page Donations of inventory. Taxact login tax return taxact login page taxact sign page   The vehicle donation rules just described do not apply to donations of inventory. Taxact login tax return taxact login page taxact sign page For example, these rules do not apply if you are a car dealer who donates a car you had been holding for sale to customers. Taxact login tax return taxact login page taxact sign page See Inventory , later. Taxact login tax return taxact login page taxact sign page Taxidermy Property If you donate taxidermy property to a qualified organization, your deduction is limited to your basis in the property or its fair market value, whichever is less. Taxact login tax return taxact login page taxact sign page This applies if you prepared, stuffed, or mounted the property or paid or incurred the cost of preparing, stuffing, or mounting the property. Taxact login tax return taxact login page taxact sign page Your basis for this purpose includes only the cost of preparing, stuffing, and mounting the property. Taxact login tax return taxact login page taxact sign page Your basis does not include transportation or travel costs. Taxact login tax return taxact login page taxact sign page It also does not include the direct or indirect costs for hunting or killing an animal, such as equipment costs. Taxact login tax return taxact login page taxact sign page In addition, it does not include the value of your time. Taxact login tax return taxact login page taxact sign page Taxidermy property means any work of art that: Is the reproduction or preservation of an animal, in whole or in part, Is prepared, stuffed, or mounted to recreate one or more characteristics of the animal, and Contains a part of the body of the dead animal. Taxact login tax return taxact login page taxact sign page Property Subject to a Debt If you contribute property subject to a debt (such as a mortgage), you must reduce the fair market value of the property by: Any allowable deduction for interest you paid (or will pay) that is attributable to any period after the contribution, and If the property is a bond, the lesser of: Any allowable deduction for interest you paid (or will pay) to buy or carry the bond that is attributable to any period before the contribution, or The interest, including bond discount, receivable on the bond that is attributable to any period before the contribution, and that is not includible in your income due to your accounting method. Taxact login tax return taxact login page taxact sign page This prevents you from deducting the same amount as both investment interest and a charitable contribution. Taxact login tax return taxact login page taxact sign page If the recipient (or another person) assumes the debt, you must also reduce the fair market value of the property by the amount of the outstanding debt assumed. Taxact login tax return taxact login page taxact sign page The amount of the debt is also treated as an amount realized on the sale or exchange of property for purposes of figuring your taxable gain (if any). Taxact login tax return taxact login page taxact sign page For more information, see Bargain Sales under Giving Property That Has Increased in Value, later. Taxact login tax return taxact login page taxact sign page Partial Interest in Property Generally, you cannot deduct a charitable contribution of less than your entire interest in property. Taxact login tax return taxact login page taxact sign page Right to use property. Taxact login tax return taxact login page taxact sign page   A contribution of the right to use property is a contribution of less than your entire interest in that property and is not deductible. Taxact login tax return taxact login page taxact sign page Example 1. Taxact login tax return taxact login page taxact sign page You own a 10-story office building and donate rent-free use of the top floor to a charitable organization. Taxact login tax return taxact login page taxact sign page Because you still own the building, you have contributed a partial interest in the property and cannot take a deduction for the contribution. Taxact login tax return taxact login page taxact sign page Example 2. Taxact login tax return taxact login page taxact sign page Mandy White owns a vacation home at the beach that she sometimes rents to others. Taxact login tax return taxact login page taxact sign page For a fund-raising auction at her church, she donated the right to use the vacation home for 1 week. Taxact login tax return taxact login page taxact sign page At the auction, the church received and accepted a bid from Lauren Green equal to the fair rental value of the home for 1 week. Taxact login tax return taxact login page taxact sign page Mandy cannot claim a deduction because of the partial interest rule. Taxact login tax return taxact login page taxact sign page Lauren cannot claim a deduction either, because she received a benefit equal to the amount of her payment. Taxact login tax return taxact login page taxact sign page See Contributions From Which You Benefit , earlier. Taxact login tax return taxact login page taxact sign page Exceptions. Taxact login tax return taxact login page taxact sign page   You can deduct a charitable contribution of a partial interest in property only if that interest represents one of the following items. Taxact login tax return taxact login page taxact sign page A remainder interest in your personal home or farm. Taxact login tax return taxact login page taxact sign page A remainder interest is one that passes to a beneficiary after the end of an earlier interest in the property. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page You keep the right to live in your home during your lifetime and give your church a remainder interest that begins upon your death. Taxact login tax return taxact login page taxact sign page You can deduct the value of the remainder interest. Taxact login tax return taxact login page taxact sign page An undivided part of your entire interest. Taxact login tax return taxact login page taxact sign page This must consist of a part of every substantial interest or right you own in the property and must last as long as your interest in the property lasts. Taxact login tax return taxact login page taxact sign page But see Fractional Interest in Tangible Personal Property , later. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page You contribute voting stock to a qualified organization but keep the right to vote the stock. Taxact login tax return taxact login page taxact sign page The right to vote is a substantial right in the stock. Taxact login tax return taxact login page taxact sign page You have not contributed an undivided part of your entire interest and cannot deduct your contribution. Taxact login tax return taxact login page taxact sign page A partial interest that would be deductible if transferred to certain types of trusts. Taxact login tax return taxact login page taxact sign page A qualified conservation contribution (defined later). Taxact login tax return taxact login page taxact sign page For information about how to figure the value of a contribution of a partial interest in property, see Partial Interest in Property Not in Trust in Publication 561. Taxact login tax return taxact login page taxact sign page Fractional Interest in Tangible Personal Property You cannot deduct a charitable contribution of a fractional interest in tangible personal property unless all interests in the property are held immediately before the contribution by: You, or You and the qualifying organization receiving the contribution. Taxact login tax return taxact login page taxact sign page If you make an additional contribution later, the fair market value of that contribution will be determined by using the smaller of: The fair market value of the property at the time of the initial contribution, or The fair market value of the property at the time of the additional contribution. Taxact login tax return taxact login page taxact sign page Tangible personal property is defined later under Future Interest in Tangible Personal Property . Taxact login tax return taxact login page taxact sign page A fractional interest in property is an undivided portion of your entire interest in the property. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page An undivided one-quarter interest in a painting that entitles an art museum to possession of the painting for 3 months of each year is a fractional interest in the property. Taxact login tax return taxact login page taxact sign page Recapture of deduction. Taxact login tax return taxact login page taxact sign page   You must recapture your charitable contribution deduction by including it in your income if both of the following statements are true. Taxact login tax return taxact login page taxact sign page You contributed a fractional interest in tangible personal property after August 17, 2006. Taxact login tax return taxact login page taxact sign page You do not contribute the rest of your interests in the property to the original recipient or, if it no longer exists, another qualified organization on or before the earlier of: The date that is 10 years after the date of the initial contribution, or The date of your death. Taxact login tax return taxact login page taxact sign page   Recapture is also required if the qualified organization has not taken substantial physical possession of the property and used it in a way related to the organization's purpose during the period beginning on the date of the initial contribution and ending on the earlier of: The date that is 10 years after the date of the initial contribution, or The date of your death. Taxact login tax return taxact login page taxact sign page Additional tax. Taxact login tax return taxact login page taxact sign page   If you must recapture your deduction, you must also pay interest and an additional tax equal to 10% of the amount recaptured. Taxact login tax return taxact login page taxact sign page Qualified Conservation Contribution A qualified conservation contribution is a contribution of a qualified real property interest to a qualified organization to be used only for conservation purposes. Taxact login tax return taxact login page taxact sign page Qualified organization. Taxact login tax return taxact login page taxact sign page   For purposes of a qualified conservation contribution, a qualified organization is: A governmental unit, A publicly supported charity, or An organization controlled by, and operated for the exclusive benefit of, a governmental unit or a publicly supported charity. Taxact login tax return taxact login page taxact sign page The organization also must have a commitment to protect the conservation purposes of the donation and must have the resources to enforce the restrictions. Taxact login tax return taxact login page taxact sign page   A publicly supported charity is an organization of the type described in (1) under Types of Qualified Organizations , earlier, that normally receives a substantial part of its support, other than income from its exempt activities, from direct or indirect contributions from the general public or from governmental units. Taxact login tax return taxact login page taxact sign page Qualified real property interest. Taxact login tax return taxact login page taxact sign page   This is any of the following interests in real property. Taxact login tax return taxact login page taxact sign page Your entire interest in real estate other than a mineral interest (subsurface oil, gas, or other minerals, and the right of access to these minerals). Taxact login tax return taxact login page taxact sign page A remainder interest. Taxact login tax return taxact login page taxact sign page A restriction (granted in perpetuity) on the use that may be made of the real property. Taxact login tax return taxact login page taxact sign page Conservation purposes. Taxact login tax return taxact login page taxact sign page   Your contribution must be made only for one of the following conservation purposes. Taxact login tax return taxact login page taxact sign page Preserving land areas for outdoor recreation by, or for the education of, the general public. Taxact login tax return taxact login page taxact sign page Protecting a relatively natural habitat of fish, wildlife, or plants, or a similar ecosystem. Taxact login tax return taxact login page taxact sign page Preserving open space, including farmland and forest land, if it yields a significant public benefit. Taxact login tax return taxact login page taxact sign page The open space must be preserved either for the scenic enjoyment of the general public or under a clearly defined federal, state, or local governmental conservation policy. Taxact login tax return taxact login page taxact sign page Preserving a historically important land area or a certified historic structure. Taxact login tax return taxact login page taxact sign page Building in registered historic district. Taxact login tax return taxact login page taxact sign page   If a building in a registered historic district is a certified historic structure, a contribution of a qualified real property interest that is an easement or other restriction on the exterior of the building is deductible only if it meets all of the following conditions. Taxact login tax return taxact login page taxact sign page The restriction must preserve the entire exterior of the building (including its front, sides, rear, and height) and must prohibit any change to the exterior of the building that is inconsistent with its historical character. Taxact login tax return taxact login page taxact sign page You and the organization receiving the contribution must enter into a written agreement certifying, under penalty of perjury, that the organization: Is a qualified organization with a purpose of environmental protection, land conservation, open space preservation, or historic preservation, and Has the resources to manage and enforce the restriction and a commitment to do so. Taxact login tax return taxact login page taxact sign page You must include with your return: A qualified appraisal, Photographs of the building's entire exterior, and A description of all restrictions on development of the building, such as zoning laws and restrictive covenants. Taxact login tax return taxact login page taxact sign page   If you claimed the rehabilitation credit for the building for any of the 5 years before the year of the contribution, your charitable deduction is reduced. Taxact login tax return taxact login page taxact sign page For more information, see Form 3468, Investment Credit, and Internal Revenue Code section 170(f)(14). Taxact login tax return taxact login page taxact sign page   If you claim a deduction of more than $10,000, your deduction will not be allowed unless you pay a $500 filing fee. Taxact login tax return taxact login page taxact sign page See Form 8283-V, Payment Voucher for Filing Fee Under Section 170(f)(13), and its instructions. Taxact login tax return taxact login page taxact sign page You may be able to deduct the filing fee as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit, on Schedule A (Form 1040). Taxact login tax return taxact login page taxact sign page See Deductions Subject to the 2% Limit in Publication 529 for more information. Taxact login tax return taxact login page taxact sign page More information. Taxact login tax return taxact login page taxact sign page   For information about determining the fair market value of qualified conservation contributions, see Publication 561. Taxact login tax return taxact login page taxact sign page For information about the limits that apply to deductions for this type of contribution, see Limits on Deductions , later. Taxact login tax return taxact login page taxact sign page For more information about qualified conservation contributions, see Regulations section 1. Taxact login tax return taxact login page taxact sign page 170A-14. Taxact login tax return taxact login page taxact sign page Future Interest in Tangible Personal Property You cannot deduct the value of a charitable contribution of a future interest in tangible personal property until all intervening interests in and rights to the actual possession or enjoyment of the property have either expired or been turned over to someone other than yourself, a related person, or a related organization. Taxact login tax return taxact login page taxact sign page But see Fractional Interest in Tangible Personal Property , earlier, and Tangible personal property put to unrelated use , later. Taxact login tax return taxact login page taxact sign page Related persons include your spouse, children, grandchildren, brothers, sisters, and parents. Taxact login tax return taxact login page taxact sign page Related organizations may include a partnership or corporation in which you have an interest, or an estate or trust with which you have a connection. Taxact login tax return taxact login page taxact sign page Tangible personal property. Taxact login tax return taxact login page taxact sign page   This is any property, other than land or buildings, that can be seen or touched. Taxact login tax return taxact login page taxact sign page It includes furniture, books, jewelry, paintings, and cars. Taxact login tax return taxact login page taxact sign page Future interest. Taxact login tax return taxact login page taxact sign page   This is any interest that is to begin at some future time, regardless of whether it is designated as a future interest under state law. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page You own an antique car that you contribute to a museum. Taxact login tax return taxact login page taxact sign page You give up ownership, but retain the right to keep the car in your garage with your personal collection. Taxact login tax return taxact login page taxact sign page Because you keep an interest in the property, you cannot deduct the contribution. Taxact login tax return taxact login page taxact sign page If you turn the car over to the museum in a later year, giving up all rights to its use, possession, and enjoyment, you can take a deduction for the contribution in that later year. Taxact login tax return taxact login page taxact sign page Inventory If you contribute inventory (property you sell in the course of your business), the amount you can deduct is the smaller of its fair market value on the day you contributed it or its basis. Taxact login tax return taxact login page taxact sign page The basis of contributed inventory is any cost incurred for the inventory in an earlier year that you would otherwise include in your opening inventory for the year of the contribution. Taxact login tax return taxact login page taxact sign page You must remove the amount of your charitable contribution deduction from your opening inventory. Taxact login tax return taxact login page taxact sign page It is not part of the cost of goods sold. Taxact login tax return taxact login page taxact sign page If the cost of donated inventory is not included in your opening inventory, the inventory's basis is zero and you cannot claim a charitable contribution deduction. Taxact login tax return taxact login page taxact sign page Treat the inventory's cost as you would ordinarily treat it under your method of accounting. Taxact login tax return taxact login page taxact sign page For example, include the purchase price of inventory bought and donated in the same year in the cost of goods sold for that year. Taxact login tax return taxact login page taxact sign page A special rule applies to certain donations of food inventory. Taxact login tax return taxact login page taxact sign page See Food Inventory, later. Taxact login tax return taxact login page taxact sign page Patents and Other Intellectual Property If you donate intellectual property to a qualified organization, your deduction is limited to the basis of the property or the fair market value of the property, whichever is smaller. Taxact login tax return taxact login page taxact sign page Intellectual property means any of the following: Patents. Taxact login tax return taxact login page taxact sign page Copyrights (other than a copyright described in Internal Revenue Code sections 1221(a)(3) or 1231(b)(1)(C)). Taxact login tax return taxact login page taxact sign page Trademarks. Taxact login tax return taxact login page taxact sign page Trade names. Taxact login tax return taxact login page taxact sign page Trade secrets. Taxact login tax return taxact login page taxact sign page Know-how. Taxact login tax return taxact login page taxact sign page Software (other than software described in Internal Revenue Code section 197(e)(3)(A)(i)). Taxact login tax return taxact login page taxact sign page Other similar property or applications or registrations of such property. Taxact login tax return taxact login page taxact sign page Additional deduction based on income. Taxact login tax return taxact login page taxact sign page   You may be able to claim additional charitable contribution deductions in the year of the contribution and years following, based on the income, if any, from the donated property. Taxact login tax return taxact login page taxact sign page   The following table shows the percentage of income from the property that you can deduct for each of your tax years ending on or after the date of the contribution. Taxact login tax return taxact login page taxact sign page In the table, “tax year 1,” for example, means your first tax year ending on or after the date of the contribution. Taxact login tax return taxact login page taxact sign page However, you can take the additional deduction only to the extent the total of the amounts figured using this table is more than the amount of the deduction claimed for the original donation of the property. Taxact login tax return taxact login page taxact sign page   After the legal life of the intellectual property ends, or after the 10th anniversary of the donation, whichever is earlier, no additional deduction is allowed. Taxact login tax return taxact login page taxact sign page The additional deductions cannot be taken for intellectual property donated to certain private foundations. Taxact login tax return taxact login page taxact sign page Tax year Deductible percentage 1 100% 2 100% 3 90% 4 80% 5 70% 6 60% 7 50% 8 40% 9 30% 10 20% 11 10% 12 10% Reporting requirements. Taxact login tax return taxact login page taxact sign page   You must inform the organization at the time of the donation that you intend to treat the donation as a contribution subject to the provisions just discussed. Taxact login tax return taxact login page taxact sign page   The organization is required to file an information return showing the income from the property, with a copy to you. Taxact login tax return taxact login page taxact sign page This is done on Form 8899, Notice of Income From Donated Intellectual Property. Taxact login tax return taxact login page taxact sign page Determining Fair Market Value This section discusses general guidelines for determining the fair market value of various types of donated property. Taxact login tax return taxact login page taxact sign page Publication 561 contains a more complete discussion. Taxact login tax return taxact login page taxact sign page 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, and both having reasonable knowledge of all the relevant facts. Taxact login tax return taxact login page taxact sign page Used clothing. Taxact login tax return taxact login page taxact sign page   The fair market value of used clothing and other personal items is usually far less than the price you paid for them. Taxact login tax return taxact login page taxact sign page There are no fixed formulas or methods for finding the value of items of clothing. Taxact login tax return taxact login page taxact sign page   You should claim as the value the price that buyers of used items actually pay in used clothing stores, such as consignment or thrift shops. Taxact login tax return taxact login page taxact sign page      Also see Clothing and Household Items , earlier. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page    Kristin donated a coat to a thrift store operated by her church. Taxact login tax return taxact login page taxact sign page She paid $300 for the coat 3 years ago. Taxact login tax return taxact login page taxact sign page Similar coats in the thrift store sell for $50. Taxact login tax return taxact login page taxact sign page The fair market value of the coat is $50. Taxact login tax return taxact login page taxact sign page Kristin's donation is limited to $50. Taxact login tax return taxact login page taxact sign page Household items. Taxact login tax return taxact login page taxact sign page   The fair market value of used household items, such as furniture, appliances, and linens, is usually much lower than the price paid when new. Taxact login tax return taxact login page taxact sign page These items may have little or no market value because they are in a worn condition, out of style, or no longer useful. Taxact login tax return taxact login page taxact sign page For these reasons, formulas (such as using a percentage of the cost to buy a new replacement item) are not acceptable in determining value. Taxact login tax return taxact login page taxact sign page   You should support your valuation with photographs, canceled checks, receipts from your purchase of the items, or other evidence. Taxact login tax return taxact login page taxact sign page Magazine or newspaper articles and photographs that describe the items and statements by the recipients of the items are also useful. Taxact login tax return taxact login page taxact sign page Do not include any of this evidence with your tax return. Taxact login tax return taxact login page taxact sign page   If the property is valuable because it is old or unique, see the discussion under Paintings, Antiques, and Other Objects of Art in Publication 561. Taxact login tax return taxact login page taxact sign page   Also see Clothing and Household Items , earlier. Taxact login tax return taxact login page taxact sign page Cars, boats, and airplanes. Taxact login tax return taxact login page taxact sign page   If you contribute a car, boat, or airplane to a charitable organization, you must determine its fair market value. Taxact login tax return taxact login page taxact sign page Boats. Taxact login tax return taxact login page taxact sign page   Except for small, inexpensive boats, the valuation of boats should be based on an appraisal by a marine surveyor or appraiser because the physical condition is critical to the value. Taxact login tax return taxact login page taxact sign page Cars. Taxact login tax return taxact login page taxact sign page   Certain commercial firms and trade organizations publish used car pricing guides, commonly called “blue books,” containing complete dealer sale prices or dealer average prices for recent model years. Taxact login tax return taxact login page taxact sign page The guides may be published monthly or seasonally, and for different regions of the country. Taxact login tax return taxact login page taxact sign page These guides also provide estimates for adjusting for unusual equipment, unusual mileage, and physical condition. Taxact login tax return taxact login page taxact sign page The prices are not “official” and these publications are not considered an appraisal of any specific donated property. Taxact login tax return taxact login page taxact sign page But they do provide clues for making an appraisal and suggest relative prices for comparison with current sales and offerings in your area. Taxact login tax return taxact login page taxact sign page   These publications are sometimes available from public libraries, or from the loan officer at a bank, credit union, or finance company. Taxact login tax return taxact login page taxact sign page You can also find used car pricing information on the Internet. Taxact login tax return taxact login page taxact sign page   To find the fair market value of a donated car, use the price listed in a used car guide for a private party sale, not the dealer retail value. Taxact login tax return taxact login page taxact sign page However, the fair market value may be less if the car has engine trouble, body damage, high mileage, or any type of excessive wear. Taxact login tax return taxact login page taxact sign page The fair market value of a donated car is the same as the price listed in a used car guide for a private party sale only if the guide lists a sales price for a car that is the same make, model, and year, sold in the same area, in the same condition, with the same or similar options or accessories, and with the same or similar warranties as the donated car. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page You donate a used car in poor condition to a local high school for use by students studying car repair. Taxact login tax return taxact login page taxact sign page A used car guide shows the dealer retail value for this type of car in poor condition is $1,600. Taxact login tax return taxact login page taxact sign page However, the guide shows the price for a private party sale of the car is only $750. Taxact login tax return taxact login page taxact sign page The fair market value of the car is considered to be $750. Taxact login tax return taxact login page taxact sign page Large quantities. Taxact login tax return taxact login page taxact sign page   If you contribute a large number of the same item, fair market value is the price at which comparable numbers of the item are being sold. Taxact login tax return taxact login page taxact sign page Example. Taxact login tax return taxact login page taxact sign page You purchase 500 bibles for $1,000. Taxact login tax return taxact login page taxact sign page The person who sells them to you says the retail value of these bibles is $3,000. Taxact login tax return taxact login page taxact sign page If you contribute the bibles to a qualified organization, you can claim a deduction only for the price at which similar numbers of the same bible are currently being sold. Taxact login tax return taxact login page taxact sign page Your charitable contribution is $1,000, unless you can show that similar numbers of that bible wer