Whether it’s Trojans vs. Bruins, Longhorns vs. Aggies, or even Badgers vs. Gophers, we all want our alma mater’s to win. Whether it’s on the field, on the stage, or in the classroom, donations are an essential part of the alumni experience.
According to Bloomberg reports, the Tax Policy Center estimated that the Tax Act (December 2017) reduced the overall $300 billion of charitable giving by as much as 5 percent. An estimated $40 billion of charitable giving goes to universities and colleges, money that is central to their functioning. So how does charitable giving to higher education work? And how does it affect your finances?
How It Works
The Internal Revenue Service allows you to claim tax benefits on donations made to higher education institutions. these institutions must be set up as “non-profit” entities in the eyes of the IRS, otherwise these donations are still taxable. For instance, a for-profit technical school would not allow for tax deductions from your income. Wondering if your institution is tax exempt? Find out using the Exempt Organization list from the IRS.
Clubs and Organizations
The IRS lets you contribute to non-profit institutions, as well as non-profit clubs and organizations associated with the college or university. But there’s a catch! If you receive a gift in lieu of your donation, you can only deduct up to the additional amount leftover after the price of the gift is deducted.
Example: You donate $120k to your alma mater’s theater department. In return, you recieve season theater tickets valued at $20k. On your taxes, you may only claim a charitable contribution of $100k.
Lets take a step further? For athletic events specifically, anyone who purchases sporting event tickets in exchange for a donation can only deduct up to 80% of the additional amount leftover after the price of the tickets is deducted.
Example: You donate $120k to your alma mater’s football team. In return, you receive season tickets valued at $20k. On your taxes, you may only claim a charitable contribution of $80k, 80% of the leftover $100k after the tickets.
What if I don’t want to donate money?
It’s cool! There are other ways to donate to your alma mater, while still qualifying for tax exemptions. These non-monetary donations are limited, but some options include vehicles, furniture, electronics, appliances, property, and patents. The calculated donation amount for these items is based on “fair market value”, according to the IRS.
Is there a catch? Of course! You can only deduct the amount you initially paid for an item, lest any appreciation.
Example: If you buy a building and renovate it so it’s much nicer, and then donate it to a university, you will only be able to claim the original amount you paid for the building prior to it’s renovation.
So… What doesn’t qualify?
The IRS will not recognize contribution to an individual student’s or faculty’s tuition or fees as a charitable contribution. As mentioned, if the university, college, club, or organization operates as a for-profit entity, they are not eligible for tax exemption by the IRS.
As far as contribution limits are concerned, even if your contribution is fully deductible, you cannot claim any amount of contributions that are over 50% of your adjusted gross income (AGI) for that specific year.
Make sure to get documentation from your college or university for any donations made. For cash donations, you can use a cancelled check to verify any donations under $250. For anything over $250, you’ll need a receipt from the university that includes the amount of the donation as well as the date it was donated on. When it comes to property or item donation, an itemized list of the donations must be included with the receipt. For items over $5,000, an appraisal of the items is also required.
For more information regarding charitable contribution specifics, you can visit IRS.gov.