Out-of-Pocket Expenses in Giving Services
You may be able to deduct some amounts you pay in giving services to a qualified
organization. The amounts must be:
- Unreimbursed,
- Directly connected with the services,
- Expenses you had only because of the services you gave, and
- Not personal, living, or family expenses.
Table 26-2 contains questions and answers that apply to some individuals who
volunteer their services.
Conventions. If you are a chosen representative attending
a convention of a qualified organization, you can deduct actual unreimbursed expenses for
travel and transportation, including a reasonable amount for meals and lodging, while away
from home overnight in connection with the convention. However, see Travel, later.
You cannot deduct personal expenses for sightseeing, fishing parties, theater tickets,
or nightclubs. You also cannot deduct travel, meals and lodging, and other expenses for
your spouse or children.
You cannot deduct your expenses in attending a church convention if you go only as a
member of your church rather than as a chosen representative. You can deduct unreimbursed
expenses that are directly connected with giving services for your church during the
convention.
Uniforms. You can deduct the
cost and upkeep of uniforms that are not suitable for everyday use and that you must wear
while performing donated services for a charitable organization.
Foster parents. You may be able to deduct as a charitable
contribution some of the costs of being a foster parent (foster care provider) if you have
no profit motive in providing the foster care and are not, in fact, making a profit. A
qualified organization must designate the individuals you take into your home for foster
care.
You can deduct expenses that meet both of the following requirements.
- They are unreimbursed out-of-pocket expenses to feed, clothe, and care for the foster
child.
- They are mainly to benefit the qualified organization.
Unreimbursed expenses that you cannot deduct as charitable contributions may be
considered support provided by you in determining whether you can claim the foster child
as a dependent. For details, see chapter 3.
Example. You cared for a foster child because you wanted to
adopt her, not to benefit the agency that placed her in your home. Your unreimbursed
expenses are not deductible as charitable contributions.
Car expenses. You can deduct
unreimbursed out-of-pocket expenses, such as the cost of gas and oil, that are directly
related to the use of your car in giving services to a charitable organization. You
cannot deduct any part of general repair and maintenance expenses, depreciation,
registration fees, or the costs of tires or insurance.
If you do not want to deduct your actual expenses, you can use a standard mileage rate
of 14 cents a mile to figure your contribution.
You can deduct parking fees and tolls whether you use your actual expenses or the
standard mileage rate.
You must keep reliable written records of your car expenses. For more information, see Car
expenses under Records To Keep, later.
Travel. Generally, you can claim a charitable contribution deduction
for travel expenses necessarily incurred while you are away from home performing services
for a charitable organization only if there is no significant element of personal
pleasure, recreation, or vacation in the travel. This applies whether you pay the
expenses directly or indirectly. You are paying the expenses indirectly if you make a
payment to the charitable organization and the organization pays for your travel expenses.
The deduction for travel expenses will not be denied simply because you enjoy providing
services to the charitable organization. Even if you enjoy the trip, you can take a
charitable contribution deduction for your travel expenses if you are on duty in a genuine
and substantial sense throughout the trip. However, if you have only nominal duties, or if
for significant parts of the trip you do not have any duties, you cannot deduct your
travel expenses.
Example 1. You are a troop leader for a tax-exempt youth group
and take the group on a camping trip. You are responsible for overseeing the setup of the
camp and for providing the adult supervision for the other activities during the entire
trip. You participate in the activities of the group and really enjoy your time with them.
You oversee the breaking of camp and you transport the group home. You can deduct your
travel expenses.
Example 2. You sail from one island to another and spend 8 hours
a day counting whales and other forms of marine life. The project is sponsored by a
charitable organization. In most circumstances, you cannot deduct your expenses.
Example 3. You work for several hours each morning on an
archaeological dig sponsored by a charitable organization. The rest of the day is free for
recreation and sightseeing. You cannot take a charitable contribution deduction even
though you work very hard during those few hours.
Example 4. You spend the entire day attending a charitable
organization's regional meeting as a chosen representative. In the evening you go to the
theater. You can claim your travel expenses as charitable contributions, but you cannot
claim the cost of your evening at the theater.
Daily allowance (per diem). If you provide services for a
charitable organization and receive a daily allowance to cover reasonable travel expenses,
including meals and lodging while away from home overnight, you must include in income the
amount of the allowance that is more than your deductible travel expenses. You can deduct
your necessary travel expenses that are more than the allowance.
Deductible travel expenses. These include:
- Air, rail, and bus transportation,
- Out-of-pocket expenses for your car,
- Taxi fares or other costs of transportation between the airport or station and your
hotel,
- Lodging costs, and
- The cost of meals.
Because these travel expenses are not business related, they are not subject to the
same limits as business-related expenses. For information on business travel expenses, see
Travel Expenses in chapter 28.
Contributions
You Cannot Deduct
There are some contributions that you cannot deduct, such as those made to individuals
and those made to nonqualified organizations. (See Contributions to Individuals and
Contributions to Nonqualified Organizations, next). There are others that you can
deduct only part of, as discussed later under Contributions From Which You Benefit.
Contributions To Individuals
You cannot deduct contributions to specific individuals, including the following.
Contributions To Nonqualified Organizations
You cannot deduct contributions to organizations that are not qualified to receive
tax-deductible contributions, including the following.
- Certain state bar associations if:
- The state bar is not a political subdivision of a state,
- The bar has private, as well as public, purposes, such as promoting the professional
interests of members, and
- Your contribution is unrestricted and can be used for private purposes.
- Chambers of commerce and other business leagues or organizations.
- Civic leagues and associations.
- Communist organizations.
- Country clubs and other social clubs.
- Foreign organizations other than:
- A U.S. organization that transfers funds to a charitable foreign organization if the
U.S. organization controls the use of the funds or if the foreign organization is only an
administrative arm of the U.S. organization, or
- Certain Canadian, Israeli, or Mexican charitable organizations. See Certain foreign
charitable organizations under Organizations That Qualify To Receive Deductible
Contributions, earlier.
- Homeowners' associations.
- Labor unions. But you may be able to deduct union dues as a
miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit, on
Schedule A (Form 1040). See chapter 30.
- Political organizations and candidates.
Contributions From
Which You Benefit
If you receive or expect to receive a financial or economic benefit as a result of
making a contribution to a qualified organization, you cannot deduct the part of the
contribution that represents the value of the benefit you receive or expect to receive.
These contributions include the following.
- Contributions for lobbying. This includes amounts that you earmark for
use in, or in connection with, influencing specific legislation.
- Contributions to a retirement home that are clearly for room, board,
maintenance, or admittance. Also, if the amount of your contribution depends on the type
or size of apartment you will occupy, it is not a charitable contribution.
- Costs of raffles, bingo, lottery, etc. You cannot deduct as a charitable
contribution amounts you pay to buy raffle or lottery tickets or to play bingo or other
games of chance. For information on how to report gambling winnings and losses, see
chapter 13 and chapter 30.
- Dues to fraternal orders and similar groups. However, see Membership
fees or dues, earlier, under Contributions You Can Deduct.
- Tuition, or amounts you pay instead of tuition, even if you pay them for
children to attend parochial schools or qualifying nonprofit day-care centers. You also
cannot deduct any fixed amount you may be required to pay in addition to the tuition fee
to enroll in a private school, even if it is designated as a donation.
Value of Time or Services
You cannot deduct the value of your time or services, including:
- Blood donations to the Red Cross or to blood banks, and
- The value of income lost while you work as an unpaid volunteer for a
qualified organization.
Personal Expenses
You cannot deduct personal, living, or family expenses, such as:
Appraisal Fees
Fees that you pay to find the fair market value of donated property
are not deductible as contributions. You can claim them, subject to the
2%-of-adjusted-gross-income limit, as miscellaneous deductions on Schedule A (Form 1040).
See chapter 30.
Contributions
of Property
If you contribute property to a qualified organization, the amount of
your charitable contribution is generally the fair market value of the property at
the time of the contribution. However, if the property has increased in value, you may
have to make some adjustments to the amount of your deduction. See Giving Property
That Has Increased in Value, later.
For information about the records you must keep and the information you must furnish
with your return if you donate property, see Records To Keep and How To
Report, later.
As this publication was being prepared for print, Congress was considering legislation
that would allow an enhanced deduction for charitable contributions of literary, musical,
artistic, and scholarly compositions for contributions made after 2002. For more
information about this and other important tax changes, see Publication 553, Highlights
of 2002 Tax Changes.
Partial interest in property. Generally, you cannot deduct a
charitable contribution (not made by a transfer in trust) of less than your entire
interest in property. A contribution of the right to use property is a contribution of
less than your entire interest in that property and is not deductible. For exceptions and
more information, see Partial Interest in Property Not in Trust in Publication
561.
Future interests in tangible personal property. You can deduct the
value of a charitable contribution of a future interest in tangible personal property only
after all intervening interests in and rights to the actual possession or enjoyment of the
property have either expired or been turned over to someone other than yourself, a related
person, or a related organization.
Future interest. This is any interest that is to begin at
some future time, regardless of whether it is designated as a future interest under state
law.
Determining
Fair Market Value
This section discusses general guidelines for determining the fair
market value of various types of donated property. Fair market value is the price
at which property would change hands between a willing buyer and a willing seller, neither
having to buy or sell, and both having reasonable knowledge of all the relevant facts.
Publication 561 contains a more complete discussion.
Used clothing and household goods. Generally, the fair market value
of used clothing and household goods is far less than its original cost.
For used clothing, you should claim as the value the price that buyers of used items
actually pay in used clothing stores, such as consignment or thrift shops. See Household
Goods in Publication 561 for information on the valuation of household goods, such as
furniture, appliances, and linens.
Example. Dawn Greene donated a coat to a thrift store operated
by her church. She paid $300 for the coat 3 years ago. Similar coats in the thrift store
sell for $25. The fair market value of the coat is therefore $25. Dawn's donation is
limited to $25.
Cars, boats, and aircraft. If you contribute a car, boat, or
aircraft to a charitable organization, you must determine its fair market value.
Certain commercial firms and trade organizations publish guides, commonly called blue
books, containing complete dealer sale prices or dealer average prices for recent
model years. The guides may be published monthly or seasonally and for different regions
of the country. These guides also provide estimates for adjusting for unusual equipment,
unusual mileage, and physical condition. The prices are not official and these
publications are not considered an appraisal of any specific donated property. But they do
provide clues for making an appraisal and suggest relative prices for comparison with
current sales and offerings in your area.
Example. You donate your car to a local high school for use by
their students studying automobile repair. Your credit union told you that the blue
book value of the car is $1,600. However, your car needs extensive repairs and, after
some checking, you find that you could sell it for $750. You can deduct $750, the true
fair market value of the car, as a charitable contribution.
Large quantities. If you contribute a large number of the same item,
fair market value is the price at which comparable numbers of the item are being sold.
Giving Property That
Has Decreased in Value
If you contribute property with a fair market value that is less than your basis in it,
your deduction is limited to fair market value. You cannot claim a deduction for the
difference between the property's basis and its fair market value.
Giving Property That
Has Increased in Value
If you contribute property with a fair market value that is more than your basis in it,
you may have to reduce the fair market value by the amount of appreciation (increase in
value) when you figure your deduction.
Your basis in property is generally what you paid for it. See chapter 14 if you need
more information about basis.
Different rules apply to figuring your deduction, depending on whether the property is:
- Ordinary income property, or
- Capital gain property.
Ordinary income property. Property is ordinary income property if
its sale at fair market value on the date it was contributed would have resulted in
ordinary income or in short-term capital gain. Examples of ordinary income property are
inventory, works of art created by the donor, manuscripts prepared by the donor, and
capital assets held 1 year or less.
The amount you can deduct for a contribution of ordinary income property is its fair
market value less the amount that would be ordinary income or short-term capital gain if
you sold the property for its fair market value. Generally, this rule limits the deduction
to your basis in the property.
Example. You donate stock that you held for 5 months to your
church. The fair market value of the stock on the day you donate it is $1,000, but you
paid only $800 (your basis). Because the $200 of appreciation would be short-term capital
gain if you sold the stock, your deduction is limited to $800 (fair market value less the
appreciation).
Capital gain property. Property is capital gain property if its sale
at fair market value on the date of the contribution would have resulted in long-term
capital gain. It includes capital assets held more than 1 year, as well as certain real
property and depreciable property used in your trade or business and, generally, held more
than 1 year.
Amount of deduction - general rule. When figuring your
deduction for a gift of capital gain property, you usually can use the fair market
value of the gift.
Exceptions. In certain situations, you must reduce the fair
market value by any amount that would have been long-term capital gain if you had sold the
property for its fair market value. Generally, this means reducing the fair market value
to the property's cost or other basis.
Bargain sales. A bargain sale of property to a qualified
organization (a sale or exchange for less than the property's fair market value) is partly
a charitable contribution and partly a sale or exchange. A bargain sale may result in a
taxable gain.
More information. For more information on donated appreciated
property, see Giving Property That Has Increased in Value in Publication 526.
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