Tax deduction rules and strategies for current and deferred charitable gifts
Learn why the devil is in the details for charitable deductions
Duke University receives various types of charitable gifts from alumni and friends each year and the tax deduction rules for these vary widely. Duke is a public charity so gifts receive the highest deduction limits allowed by law.
This post will address the two gift categories: current or deferred. The most common type of current use gift is cash, usually made by check or credit card. Gifts of appreciated stock, securities, or other types of assets account for many of the larger gifts. Duke also receives various types of deferred or future use gifts — defined as gifts that can be used at Duke after a donor’s lifetime or a specific number of years chosen by the donor. Please note that a donor has a total of six (6) tax years to use up the deduction for any charitable gift — current year plus a five-year deduction carryover — and must use as much deduction as possible each year.
You can learn more about how to make charitable gifts to Duke and find more deduction guidance in IRS Publication 526.
So, without further ado, let’s look at the deduction rules for the most common types of charitable gifts from individuals to Duke.
Current Charitable Gifts
Gifts that Duke can use now.
- Gifts of cash — In a normal year, a donor can deduct gifts of cash at 60% of their adjusted gross income (AGI). For 2020 and 2021, this AGI limit was increased to 100%. AGI is the income figure that is shown at the bottom of the I.R.S. Form 1040 you file for your federal income tax return each year.
- Gifts of appreciated publicly traded stocks, bonds, or other securities owned more than one year — These gifts are deductible, at fair market value, at up to 30% of the donor’s AGI each year. See IRC section 170(b)(1)(C). Most stock donated to Duke is traded on a public exchange, such as the New York Stock Exchange (NYSE) or NASDAQ. It’s important that the stock is not subject to any restriction. Note: if you want to donate a stock (or other capital asset) in which you have a loss, it’s usually best to sell the stock/asset, use your capital loss against other capital gains, and donate the cash proceeds to Duke (deductible at 100% of AGI in 2021).
- Gifts of appreciated real estate, closely held stock and other illiquid assets owned for more than one year — These are deductible at 30% of AGI but the donor must secure a qualified appraisal to document a deduction of $5,000 or more for their personal income tax return. There may also be other costs to the donor for preparation of a deed or transfer costs. For more detailed information about appraisal requirements, see I.R.S. Publication 561. Read this FAQ on gifts of privately held securities for an overview of gifts of closely held stock.
- Stack gifts of cash on top of gifts of appreciated assets — A donor may “stack” gifts of cash on top of gifts of appreciated assets if the donor wants a higher AGI deduction in a given year. Some donors also lump/bunch several years of charitable deductions into a single year and then take the standard deduction for one or more years thereafter (then lump/bunch deductions again). For more information, read: Gift Planning as a retirement planning tool.
- Gifts from a Donor Advised Fund (DAF) to Duke University — A donor receives a charitable income tax deduction when making a gift to a donor advised fund. The donor does not receive any additional deduction when a charity (Duke) receives a distribution recommended by the donor from a donor advised fund. (Sorry, folks! No double deduction dipping!)
- Gifts from a Charitable IRA Rollover (also called a Qualified Charitable Distribution (QCD)) — Donors who have reached 70 ½ years of age can make outright charitable gifts from an Individual Retirement Account (IRA) of up to $100,000 each year. While these gifts are not deductible, they do avoid income for the donor, which is actually more beneficial for most donors. Read this charitable IRA rollover publication for an overview of the rules and benefits of making this type of gift.
- Gifts of appreciated art or collectibles and other types of personal property owned for more than one year — If the art or collectible is taken by Duke to be put to use related to the charity’s mission, these are treated the same as gifts of other appreciated assets (30% of AGI deduction; appraisal required). If the item is taken for a charity auction, or the donor is the artist/creator, the deduction is lower.
Deferred / Future Funded Charitable Gifts
Gifts that Duke can use when the assets are received in the future.
- Bequest Gifts — These are revocable gifts so no tax deduction is received until the assets are actually transferred to Duke after the donor’s death. Watch this 3-minute video about bequest gifts to Duke.
- The most common type of bequest gift is made through a person’s will or trust. These gifts are deductible when the donor’s estate makes the distribution to Duke.
- Another tax-wise way to leave a bequest gift is to name Duke University on a Beneficiary Designation Form. A donor can leave all or part of an IRA or other type of retirement account, commercial annuity, life insurance, or bank/brokerage account to support something they care about at Duke. For more information, read: Wills, Revocable Trusts and “Pass by Contract” Assets: What’s the difference?
- Life Income Gifts — These are irrevocable gifts that produce a deduction for part of the gift’s value equal to the remainder interest left to Duke or charity. The life income value is not deductible (if the income beneficiary disclaims the life income interest at some point in the future, the donor will receive an income tax deduction then). These are often created by the donor to receive income during their spouse’s life but may also be created to take effect at death and provide income for a loved one. The most common types include:
- Charitable remainder unitrusts — “CRUTs” are typically funded with cash, appreciated stock/securities or real estate, generate an immediate deduction, and pay out a fixed percentage of the trust’s value each year. Watch this 3-minute video about CRUTs.
- Charitable gift annuities — “CGAs” can be funded with cash or appreciated stock/securities and generate an immediate deduction and payout a fixed dollar amount each year. Watch this 3-minute video about CGAs.
- Other common types of Split Interest Gifts:
- Charitable lead trusts — These come in several varieties and the deduction will differ based on the type of “CLT.” A CLT can produce greater benefits for the donor when interest rates are low. The most common type of CLT will produce an estate or gift tax deduction, while another type can produce an income tax deduction. For a brief overview, read this non-grantor charitable lead trust publication.
- Retained life estate in a home or farm — A “RLE” is an irrevocable gift that produces an immediate income tax for part of the gift value (based on a qualified appraisal of the real estate) and allows the donor to continue to live in their home (or enjoy their farm) for their lifetime. For more information, see: FAQs: tax-wise real estate gift options
- Pooled income fund — This is another type of irrevocable life income gift that produces a current income tax deduction.
Please note that, while low interest rates produce lower tax deductions for some types of gifts, they actually increase the tax deductions available for other types of charitable gifts.
If you have questions or want more information about how any of these charitable gifts may benefit you and Duke University, please contact a Duke Gift Planning Officer. Thank you for all you do to help our students, faculty, researchers and others make the world a better place.