Your client owns $200,000 in stock she bought for $50,000. If she sells and donates cash, she loses $35,700 to capital gains tax. If she donates the stock directly, she sidesteps the entire bill and still deducts the full $200,000. That single decision swings her outcome by nearly $50,000.
NOTE: OBBBA charitable changes (heavily tested). Three OBBBA mechanics now apply to cash charitable giving and override the older "60% of AGI / done" simplicity. (1) 0.5% AGI floor on itemized charitable gifts (cash and property alike), the first 0.5% of AGI in contributions produces no deduction, with the disallowed slice drawn from the capital-gain-property buckets first under the statutory ordering. Above the floor, the deduction is the gift minus the floor.
Charitable contributions are an itemized deduction on Schedule A. If you take the standard deduction, you get no tax benefit from giving (unless the new above-the-line cash deduction applies). This single fact drives the entire bunching strategy, concentrate gifts into alternating years so itemized deductions exceed the standard deduction in "on" years.
Common mistakes
- Applying the 60% limit to appreciated property. Cash to public charities: 60%. LTCG property to public charities: 30%. Trap: on $400,000 AGI with a $200,000 stock donation, showing $200,000 deductible. Correct: $120,000 (30% x $400,000).
- Forgetting QCDs reduce AGI, not just taxable income. A charitable deduction reduces taxable income only if you itemize. A QCD exclusion reduces AGI, affecting Social Security taxation, IRMAA, and every AGI-sensitive threshold. Trap: treating QCD the same as a regular deduction.
- Confusing CRATs and CRUTs on additional contributions. CRATs do not permit additional contributions. CRUTs do. Trap: any option describing additional contributions to a CRAT.
Bottom line
- Cash to public charities: deduct face value, 60% AGI limit, 5-year carryforward.
- LTCG property to public charities: deduct FMV, 30% AGI limit, no capital gains tax on the appreciation.
- Private foundations: cash at 30% AGI, LTCG property at 20% AGI (basis-only deduction except publicly traded stock at FMV).
- Donor-advised funds (DAFs): treated as public charities for deduction purposes and enable the bunching strategy.
Exam shortcut
Charitable questions hinge on three variables: type of property (cash vs. appreciated), type of recipient (public vs. private vs. DAF), and the donor's AGI. Identify all three on the first read. AGI limit hierarchy: 60-30-30-20. "QCD = Quietly Cuts Down AGI." CRT vs. CLT: the name tells you who gets the remainder. CRAT: A for Annuity (fixed, no additions). CRUT: U for Updates (revalued, additions allowed).
The full lesson (about 2,888 words, 19 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- E.43
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