Donor Advised Fund Tax Deduction Limits

A donor-advised fund (DAF) operates like a personal charitable savings account. An individual contributes to the DAF and can then recommend grants from the fund to qualified public charities over time. The primary advantage is receiving an immediate tax deduction for the contribution, but understanding the rules that govern these deductions is important for using a DAF effectively.

Contribution Deduction Limits Based on AGI

The tax deduction for contributing to a DAF is tied to your Adjusted Gross Income (AGI). AGI is a measure of income calculated from your gross income, subtracting specific “above-the-line” deductions. The IRS sets percentage limits on how much of your AGI you can deduct, which vary by asset type. Since DAF sponsoring organizations are public charities, contributions receive favorable tax treatment.

For cash contributions, including currency, checks, and credit card payments, a donor can deduct an amount up to 60% of their AGI for the 2025 tax year. This limit is scheduled to revert to 50% of AGI in 2026. For instance, if a donor has an AGI of $200,000, they can contribute and deduct up to $120,000 in cash to a DAF in 2025.

For contributions of non-cash assets held for more than one year, such as appreciated stocks or bonds, the deduction limit is 30% of the donor’s AGI. Using the same $200,000 AGI example, the maximum deduction for a gift of appreciated stock would be $60,000. Donating these assets directly to a DAF can also eliminate the capital gains tax that would be incurred if the assets were sold before the donation.

Valuing Contributions for Deduction Purposes

Before applying AGI limits, a donor must determine the value of their contribution. The valuation method depends on the type of asset being donated. The rules are straightforward for some assets but require more formal processes for others.

For a cash contribution, the valuation is its face amount. A $10,000 cash donation has a value of $10,000 for deduction purposes. This simplicity makes cash one of the easiest assets to contribute and value.

When donating publicly traded securities like stocks or bonds, the value is their Fair Market Value (FMV) on the date of transfer. FMV for these assets is the average of the highest and lowest selling prices on the contribution date. For example, if a stock’s high for the day was $102 and its low was $98, its FMV would be $100 per share.

Valuing other non-cash property, such as real estate, art, or shares in a privately held company, is more complex. If the claimed deduction for such an asset exceeds $5,000, the donor must obtain a qualified appraisal. This report must be completed by a qualified appraiser with relevant credentials and experience and be dated no earlier than 60 days before the contribution date.

Handling Contributions Exceeding AGI Limits

If a donor’s contributions exceed the AGI percentage limits in a single year, the excess amount is not lost. The tax code allows for a charitable contribution carryover. This permits the donor to use the excess deduction in future tax years.

A donor can carry forward an unused portion of a charitable deduction for up to five subsequent tax years. The carried-over amount remains subject to the same AGI limits in those years.

For example, consider a donor with an AGI of $150,000 who contributes appreciated securities valued at $65,000 to a DAF. The deduction limit for this asset is 30% of AGI, or $45,000. The donor can deduct $45,000 in the current year, and the remaining $20,000 becomes a carryover amount to be used in a future tax year, subject to that year’s AGI limits.

Claiming the Deduction on Your Tax Return

To claim the deduction, you must report it correctly on your federal income tax return. A donor must itemize deductions on Schedule A (Form 1040), which is filed with the main tax form. If your total itemized deductions do not exceed the standard deduction for your filing status, you will not receive a tax benefit from the contribution.

For any non-cash charitable contribution with a total value over $500, you must complete and attach Form 8283, Noncash Charitable Contributions, to your tax return. This form requires you to provide details about the donated property and the recipient organization.

If your non-cash donation is valued over $5,000 and required a qualified appraisal, you must complete Section B of Form 8283. This section requires information about the property, the appraiser, and its fair market value. The qualified appraiser must sign this part of the form, and you must maintain the full appraisal report for your records.