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Can I carry forward donation to nonprofit?

Your Legal Questions Answered

Can I carry forward donation to nonprofit?

Can I donate the profits from the sale of my house to a nonprofit organization and carry tax deductions forward for five years if the deduction exceeds my annual limit?

That depends in part on what you mean when you say “nonprofit.”  Nonprofit is not synonymous with “charity.”  There are many nonprofits, like 501(c)(7) social clubs or 501(c)(4) social welfare organizations, that don’t give deductibility to contributions.  (See Ready Reference Page: “What Do We Mean When We Say ‘Nonprofit’?”).

Assuming the nonprofit to which you want to give the profits is a 501(c)(3) charity, you can carry forward and deduct over the next five years any amount given that exceeds the annual limit.  But your annual limit will depend on whether the charity is a public charity or a private foundation.  The annual limits are greater for a public charity than for a private foundation and also vary on whether the gift is one of cash or other property. (See Ready Reference Page: “Donor Advised Funds Still Compare Well with Private Foundations”

Assuming that you will have a capital gain on the sale of the house, you might want to consider whether you can avoid the capital gain tax by giving a percentage interest in the house to the charity before it is sold.  You might be able to get a deduction for the value of the interest without paying a tax on the gain.  You could still carry any excess deduction forward if it exceeds your annual limit. 

If you are selling your personal residence, you might avoid any capital gain tax if you “trade up” and reinvest the proceeds in a new home.  A tax planner can complicate your life a lot, but it may be worthwhile if you are considering a significant economic transaction.  The simple answer to your question may not be the most tax-efficient answer.

Tuesday, February 27, 2024

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