Charitable Contribution Carryover: Definition & Example

Instructor: Martin Gibbs

Martin has 16 years experience in Human Resources Information Systems and has a PhD in Information Technology Management. He is an adjunct professor of computer science and computer programming.

The IRS limits the amount of charitable deductions that can be claimed in a given year, but sometimes you can carry over deductions. This lesson will define carryover and provide examples of when contributions can be deferred to the next year.

Carryover Contributions

A carryover deduction or expense is one that is moved from the tax return of one year to another. For example, if you are unable to fully deduct your charitable contributions in 2016, they may be carried over to the return for 2017. In order to determine if you can carry over a deduction, we need to first figure out certain limits to contributions.

Contribution Limits and Adjusted Gross Income (AGI)

Contribution limits are set based on your adjusted gross income (AGI). Adjusted gross income (AGI) is the amount of your gross income the IRS can tax. Some of the deductions to your standard gross income, which are applied to AGI, include qualified medical expenses, paid alimony, retirement contributions, and losses from property sales. Otherwise, this is your gross income earned during the year, before taxes/deductions.

As a general rule, you can contribute up to 50% of your AGI to charity/charitable organizations. Some gifts have 30% limits: veterans organizations, fraternal societies, non-profit cemeteries. Regardless of the limit type, carryover contributions are subject to the limit. Carryover amounts can be carried forward for five years.

Examples

Let's take a look at a few examples. Both will use the 50% rule for AGI, since it is the most common limit.

Example 1

Let's assume you have won the lottery in past years (yet it wasn't enough for you to quit working!) All taxes are paid on that amount, so we won't have that complication. In the year 2016, you decide to donate a large portion of the money to your local church as it expands its soup kitchen and homeless outreach. Therefor, for tax year 2016, you made charitable contributions of $40,000, and your 2016 adjusted gross income (AGI) is $60,000.

If your 2016 AGI is $60,000, you are only allowed to deduct $30,000 on your 2016 taxes. The other $10,000 must be carried over for 2017 filing. However, if your income doesn't change, and you make more charitable contributions, you will still have to carryover amounts into subsequent years. Remember, you only have five years to carry over deductions.

Example 2

Now let's look at how previous carryovers would work. In past years, you made large contributions to a nonprofit science foundation. However, other income and charitable giving amounts put you over the 50% limit. Therefore, let's consider the following:

  • You have carried over contributions from 2015. These total $10,000.
  • Your 2016 AGI is $70,000
  • You also contributed another $30,000 to this organization in 2016.

You can fully deduct the $30,000 for 2016, since it is less than 50% of $70,000. You can now deduct $5,000 of the $10,000 that you carried over from 2015. However, another $5,000 needs to be carried over to the next year.

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