Tax Benefits of Donating to a Foundation

A foundation is a nonprofit organization that supports charitable activities. These entities are categorized as either public charities, which include donor-advised funds and receive support from the general public, or private foundations, funded by an individual, family, or corporation. A primary driver for donors is the availability of tax advantages, as contributing to a qualified foundation can reduce taxable income. The structure of a foundation influences its operational rules and the specific tax benefits available to donors, making these distinctions important for financial planning.

Calculating the Income Tax Deduction

To receive an income tax deduction for donating to a qualified foundation, you must itemize deductions on your tax return. For 2025, the standard deduction is $15,000 for single filers and $30,000 for married couples filing jointly. You can benefit from a charitable deduction if your total itemized deductions exceed this amount.

A cash contribution to a public charity allows for a deduction of up to 60% of your adjusted gross income (AGI). For example, a $10,000 cash donation for a donor in the 35% tax bracket can reduce their tax liability by $3,500.

Donating long-term appreciated assets, like stocks held for over a year, provides a dual tax benefit. The donor can deduct the full fair market value (FMV) of the asset and also avoid paying the capital gains tax that would be due if the asset were sold.

For instance, an investor holds stock valued at $50,000, originally purchased for $10,000. Selling the stock would trigger capital gains tax on the $40,000 of appreciation. After paying taxes, they would have less than the original $50,000 to donate.

By donating the stock directly, the investor can deduct the full $50,000 FMV, subject to AGI limits, and bypass the capital gains tax entirely. The foundation receives the full value, as it can sell the stock tax-free, making this a highly tax-efficient giving method.

Navigating Contribution Limits and Carryovers

The amount you can deduct for charitable gifts in a single year is limited by your adjusted gross income (AGI). These limits depend on the type of asset donated and the type of foundation receiving it.

Cash contributions to public charities, including donor-advised funds, are deductible up to 60% of your AGI. For example, if your AGI is $200,000, you can deduct up to $120,000 in cash donations to public charities in that year. Donations to most private foundations are subject to a lower limit of 30% of AGI for cash gifts.

For donations of long-term appreciated property, such as stocks, the deduction limit is 30% of AGI for public charities. This limit is further restricted to 20% of AGI when donating the same property to a private non-operating foundation.

If your donations exceed these AGI limits, the excess deduction amount can be carried over for up to five subsequent tax years. You must apply all current-year deductions first before using any carryover amounts from previous years.

Tax Implications of Donating Specific Assets

Beyond cash and securities, other assets can be contributed to a foundation, each with unique tax considerations regarding valuation and deductibility.

Real Estate

Donating real estate, such as a home or land, can provide a large tax deduction but requires a qualified appraisal to determine its fair market value. If the property has a mortgage, the donation may be treated as a “bargain sale,” which can trigger some capital gains tax for the donor.

Closely Held Business Interests

Contributing stock in a closely held corporation requires a qualified appraisal because there is no public market to establish its value. Donations of such stock to a public charity may allow for a fair market value deduction, but when donating to a private foundation, the deduction is limited to the donor’s cost basis.

Art and Collectibles

For tangible property like art, a “related use” rule applies. If the foundation’s use of the item is related to its tax-exempt purpose, such as a painting displayed in a museum, the donor can deduct the full fair market value. If the use is unrelated, the deduction is limited to the donor’s cost basis. A qualified appraisal is required for items valued over $5,000.

Required Documentation for Tax Deductions

To claim a tax deduction for a charitable contribution, you must maintain proper records as required by the IRS. The specific documentation depends on the value and type of your donation, and failure to meet these requirements can result in the disallowance of your deduction.

For any single contribution of $250 or more, you must obtain a contemporaneous written acknowledgment from the foundation. This document must be received before you file your tax return. It must include the foundation’s name, the cash amount, and a description of any non-cash property.

The acknowledgment must also state whether the foundation provided any goods or services in exchange for the gift. If so, it must provide a good faith estimate of their value.

For non-cash contributions over $500, you must file IRS Form 8283 with your tax return, detailing the property’s description, fair market value, and your cost basis. Section A of this form is used for donations valued between $500 and $5,000.

Donations of property valued at more than $5,000 require a qualified appraisal. For these gifts, you must complete Section B of Form 8283, which must be signed by the appraiser and a representative from the foundation. This ensures that the valuation is credible and the charity has acknowledged receipt of the item.

Reducing Estate Taxes Through Charitable Giving

Donating to a foundation can also be a part of estate planning by reducing potential estate tax liability. This is most applicable for individuals whose estates are large enough to be subject to the federal estate tax.

When a person leaves assets to a qualified foundation through a will or trust, the value of that bequest is deductible from their gross estate. This charitable deduction is unlimited, which can lower or even eliminate an estate tax bill by reducing the total value of the taxable estate.

For example, an estate valued above the 2025 federal estate tax exemption of $13.99 million will be taxed on the excess amount passed to heirs. If a foundation is named a beneficiary, the gift amount is subtracted from the estate’s value before the tax is calculated.

This can be done through a direct bequest, by naming a foundation as a beneficiary of a retirement account or life insurance policy, or by establishing a charitable trust. This allows a donor to support causes while preserving more of their estate for heirs by minimizing taxes.