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Compute charitable, casualty, other, and nonresident itemized deductions
Four itemized deductions share one schedule but follow different rules. Charitable gifts face percentage-of-AGI ceilings that sort cash from property and familiar charities from the rest. Personal casualty losses are deductible only for federally declared disasters, and then only after two further reductions. Gambling losses cap at winnings with strict records. Nonresident aliens work a narrower Schedule A that depends on effectively connected income. This lesson shows which rules apply to each dollar.
A charitable deduction sorts each gift twice: first by recipient, then by kind. Eligible recipients include churches, governments for public purposes, schools, hospitals, and familiar public charities; gifts to individuals, political campaigns, labor unions, and homeowners' associations never qualify. For the limits, qualified organizations fall into two categories, the first being 50%-limit organizations. Qualifying gifts then face percentage ceilings measured off AGI. Cash to a 50%-limit organization leads at 60% of AGI. Noncash gifts to the same organizations follow at 50% of AGI after subtracting the cash counted toward the 60% tier. Noncash gifts of capital gain property to 50%-limit organizations are limited to 30% of AGI after the gifts subject to the 60% and 50% tiers, but the donor may elect the 50% limit instead by reducing FMV by the appreciation that would have been long-term capital gain. Noncash capital-gain-property gifts to second-category organizations, or held for the use of any qualified organization, are limited to 20% of AGI.
Two trailing rules complete the computation. Amounts cut off by a ceiling carry over to the next 5 years (15 years for a qualified conservation contribution) rather than vanishing. Noncash gifts have their own documentation rules: substantiation depends on whether the deduction is less than $250, $250 to $500, over $500 up to $5,000, or over $5,000, with similar items combined to test the $500 line, and a deduction over $5,000 needs a contemporaneous written acknowledgment, a qualified appraisal from a qualified appraiser, and Form 8283 Section B. And gifts of $250 or more need a contemporaneous written acknowledgment describing the gift and any return benefit; separate donations are tested one by one, so fifty weekly gifts of $20 never trigger the rule individually.
Grace has AGI of $60,000 and gives $48,000 cash to her church. The 60% ceiling allows \(60{,}000 \times 60\% = 36{,}000\) this year, and the remaining $12,000 carries over. Had she instead given $36,000 cash plus $20,000 of clothing to the same church, the cash would have used the 60% tier in full and the clothing would have faced the 50% tier measured after that cash: 50% of AGI is $30,000, minus the $36,000 of cash, is below zero, so none of the clothing is deductible this year and all $20,000 of it carries over.
Publication 526 Page 4
Your deduction for charitable contributions generally can’t be more than 60% of your AGI, but in some cases 20%, 30%, or 50% limits may apply.View on the source
Publication 526 Page 24
Noncash contributions to 50% limit organizations. If you make noncash contributions to organizations described earlier under First category of qualified organizations (50% limit organizations), your deduction for the noncash contributions is limited to 50% of your AGI minus your cash contributions subject to the 60% limit.View on the source
Form 1040-NR Instructions Page 40
Gifts of $250 or more. You can deduct a gift of $250 or more only if you have a contemporaneous written acknowledgment from the charitable organization showing the information in (1) and (2) next.View on the source
Form 1040-NR Instructions Page 40
In figuring whether a gift is $250 or more, don’t combine separate donations.View on the source
Publication 526 Page 28
You can carry over any contributions you can’t deduct in the current year because they exceed the limits based on your AGI. Except for qualified conservation contributions, you may be able to deduct the excess in each of the next 5 years until it is used up, but not beyond that time. A carryover of a qualified conservation contribution can be carried forward for 15 years.View on the source
Publication 526 Page 23
For the purpose of applying the deduction limits to your charitable contributions, qualified organizations can be divided into two categories. First category of qualified organizations (50% limit organizations). The first category includes only the following types of qualified organizations.View on the source
Publication 526 Page 25
Certain capital gain property contributions to 50% limit organizations. Your noncash contributions of capital gain property to 50% limit organizations is limited to 30% of your AGI minus all your contributions to 50% limit organizations that are subject to the 60% and 50% limits (other than qualified conservation contributions).View on the source
Publication 526 Page 26
Capital gain property election. You may choose the 50% limit for contributions of capital gain property to qualified organizations described earlier under First category of qualified organizations (50% limit organizations) instead of the 30% limit that would otherwise apply. If you make this choice, you must reduce the FMV of the property contributed by the appreciation in value that would have been long-term capital gain if the property had been sold.View on the source
Publication 526 Page 25
If you make noncash contributions of capital gain property during the year (1) to an organization described earlier under Second category of qualified organizations, or (2) “for the use of” any qualified organization, your deduction for those contributions is limited to 20% of your AGI or, if less, the smallest of the following.View on the source
Publication 526 Page 31
Substantiation requirements for contributions not made in cash depend on whether your deduction for the contribution is: 1. Less than $250; 2. At least $250 but not more than $500; 3. Over $500 but not more than $5,000; or 4. Over $5,000.View on the source
Publication 526 Page 31
In figuring whether your deduction is $500 or more, combine your claimed deductions for all similar items of property donated to any qualified organization during the year.View on the source
Publication 526 Page 32
If you claim a deduction of over $5,000 for a noncash charitable contribution, you must have the contemporaneous written acknowledgement (see CWA, earlier), obtain a qualified written appraisal of the donated property from a qualified appraiser, and complete Form 8283, Section B.View on the source
AGI is $50,000. Taxpayer gives $35,000 cash to a church, a 50% limit organization, and makes no other contributions. What is the charitable deduction for the year?
A federal casualty loss is a personal-use property loss caused by a federally declared disaster: a major-disaster or emergency declaration under the Stafford Act, striking in a covered state. Fires, floods, storms, earthquakes, and similar sudden events qualify when the declaration covers them; willful acts, negligence, pets, and gradual deterioration never do, with or without a declaration. Non-disaster personal losses are deductible only against personal casualty gains, dollar for dollar.
A qualifying loss then clears two floors in order. The $100 rule trims each event's loss once, no matter how many items the event damaged. The 10% rule subtracts 10% of AGI from the combined federal-disaster total. Only the remainder is deductible, and reimbursements reduce the loss before either floor applies.
A qualified disaster loss follows different arithmetic: each loss is reduced by $500 instead of $100, and the 10% rule does not apply to it.
The decision path runs:
Jon's home suffers a $2,000 loss after insurance in a declared-disaster storm, with AGI of $29,500. The $100 rule leaves $1,900, and 10% of AGI is $2,950, so the $1,900 remainder produces no deduction. Had his loss after insurance been $8,000 instead, the path would have given \(8{,}000 - 100 - 2{,}950 = 4{,}950\) deductible.
Publication 547 Page 10
Caution: If you are an individual, casualty losses of personal-use property are deductible only if the loss is attributable to a federally declared disaster. An exception to the rule limiting the deduction for personal casualty and theft losses applies if you have personal casualty gains. In this case, you may deduct personal casualty losses that aren’t attributable to a federally declared disaster to the extent they don’t exceed your personal casualty gains.View on the source
Publication 547 Page 13
You must reduce each casualty or theft loss by $100 when figuring your deduction.View on the source
Publication 547 Page 13
You must reduce your total casualty or theft loss attributable to a federally declared disaster by 10% of your AGI.View on the source
Publication 547 Page 13
Qualified disaster losses must be reduced by $500 when figuring your deduction. See Disaster Area Losses, later, for more information.View on the source
Publication 547 Page 13
The 10% rule doesn’t apply to qualified disaster losses. See Disaster Area Losses, later, for more information.View on the source
AGI is $36,000. Taxpayer's personal car is destroyed in an isolated accident that is not a federally declared disaster. Loss after insurance is $4,000. This is the taxpayer's only theft or casualty event this year. What is the deductible casualty loss?
Gambling losses are the main other itemized deduction: losses are deductible on Schedule A, line 16, but only to the extent of winnings for the year. The reporting discipline is strict in both directions. Winnings go on the income line in full, losses go on Schedule A separately, and netting the two before reporting is forbidden. A taxpayer with $5,000 of winnings and $9,000 of losses reports $5,000 of income and deducts $5,000; the extra $4,000 of losses is lost, with no carryforward.
The annuity case carries its own final-return rule: if a retiree dies before the entire annuity investment is recovered tax free, the unrecovered investment is deductible on the retiree's final return.
Many similar expenses are not deductible. Miscellaneous itemized deductions are the deductions that would have been subject to the 2%-of-adjusted-gross-income limitation, and, apart from the qualified-employee exception for unreimbursed employee expenses, deductions in that class can no longer be claimed. Tax preparation fees on the return for the year in which they are paid are one member of that class and can no longer be deducted, including software, publications, and electronic-filing fees. The diary rule backs the gambling numbers. The taxpayer keeps a contemporaneous diary recording four details for each wager: (1) the date and type of the wager, (2) the name and location of the establishment, (3) the names of the companions present, and (4) the amounts won or lost. Estimates reconstructed at year-end do not satisfy the requirement, so a client who gambles regularly should start the diary before the losses accumulate.
Karl itemizes, reports $5,000 of winnings, and documents $9,000 of losses in a diary meeting all four detail tests. He deducts $5,000 on Schedule A and gets no benefit from the other $4,000. He also pays $300 for tax preparation software for the year. That fee is a miscellaneous itemized deduction of the 2% class and is no longer deductible, so it adds nothing to Schedule A. Had his diary been missing the companions' names, the $5,000 deduction could be disallowed, since the taxpayer must keep an accurate diary and the diary must contain at least the listed information.
Publication 17 Page 107
You must report the full amount of your gambling winnings for the year on Schedule 1 (Form 1040), line 8b. You deduct your gambling losses for the year on Schedule A (Form 1040), line 16. You can’t deduct gambling losses that are more than your winnings.View on the source
Publication 17 Page 107
You can’t reduce your gambling winnings by your gambling losses and reCAUTION port the difference. You must report the full amount of your winnings as income and claim your losses (up to the amount of winnings) as an itemized deduction.View on the source
Publication 17 Page 107
Your diary should contain at least the following information. • The date and type of your specific wager or wagering activity. • The name and address or location of the gambling establishment. • The names of other persons present with you at the gambling establishment. • The amount(s) you won or lost.View on the source
Publication 17 Page 103
Miscellaneous itemized deductions are those deductions that would have been subject to the 2%-of-adjusted-gross-income (AGI) limitation.View on the source
Publication 17 Page 104
Unless you fall into one of the qualified categories of employment under Unreimbursed Employee Expenses, earlier, miscellaneous itemized deductions that are subject to the 2%-of-AGI limitation can no longer be claimed.View on the source
Publication 17 Page 104
Tax preparation fees on the return for the year in which you pay them are a miscellaneous itemized deduction and can no longer be deducted. These fees include the cost of tax preparation software programs and tax publications. They also include any fee you paid for electronic filing of your return.View on the source
Publication 17 Page 107
If the retiree dies before the entire investment is recovered tax free, any unrecovered investment can be deducted on the retiree’s final income tax return.View on the source
Publication 17 Page 107
Diary of winnings and losses. You must keep an accurate diary or similar RECORDS record of your losses and winnings.View on the source
Taxpayer has $2,500 in gambling winnings and $3,200 in gambling losses, supported by a diary. How are they reported?
On Form 1040-NR, ECI presence is the threshold and allocation is the second test. A nonresident alien with only unconnected foreign investment income has no ECI base for itemized deductions, so only the exceptions below remain: qualifying U.S. charitable gifts and casualty and theft losses. The same taxpayer with ECI wages can itemize on the schedule. Once Schedule A is available, most lines must connect to that ECI base — but qualifying U.S. charitable gifts and casualty losses need not relate to effectively connected income. Within that limit the familiar deductions reappear in narrower form: gifts to qualifying donees, casualty and theft losses figured under the federal-disaster rules, and other deductions such as ECI gambling losses capped at winnings.
The casualty-gains exception matters more here because nonresident returns so often mix ECI property with personal property. Non-disaster personal losses offset non-disaster personal gains dollar for dollar, and only the excess gain remains as income. Disaster losses follow the same $100 and 10% computation as resident returns unless a qualified-disaster-loss rule applies, measured against Form 1040-NR income.
Nadia, a nonresident alien, earns ECI wages from her U.S. job and holds unconnected foreign investments. Her ECI wages allow her to use Schedule A (Form 1040-NR): her state-tax payments and ECI gambling losses must connect to that ECI base, while her qualifying U.S. charitable gifts and casualty losses need not relate to it. Omar's $6,000 of non-disaster personal losses meet $4,000 of personal casualty gains, so $4,000 is deductible and $2,000 expires unused.
Publication 519 Page 39
Nonresident aliens can claim some of the same itemized deductions that resident aliens can claim. However, nonresident aliens can claim itemized deductions only if they have income effectively connected with their U.S. trade or business.View on the source
Form 1040-NR Instructions Page 39
Exception. You can deduct certain charitable contributions and casualty and theft losses even if they do not relate to your effectively connected income. See Gifts to U.S. Charities and Casualty and Theft Losses, later.View on the source
Form 1040-NR Instructions Page 42
An exception to the rule limiting the deduction for CAUTION personal casualty and theft losses to federal casualty losses applies where you have personal casualty gains not attributable to a federally declared disaster. In this case, you may deduct personal casualty losses that aren’t attributable to a federally declared disaster to the extent they don’t exceed your personal casualty gains.View on the source
Form 1040-NR Instructions Page 42
Gambling losses effectively connected with a U.S. trade or business (gambling losses include, but aren’t limited to, the cost of non-winning bingo, lottery, and raffle tickets), but only to the extent of gambling winnings reported on Schedule 1 (Form 1040), line 8b.View on the source
A nonresident alien has no income effectively connected with a U.S. trade or business. Which item can still be an itemized deduction on Schedule A (Form 1040-NR)?
The course asks you questions like these as you learn, brings back the ones you miss, and ends with full-length practice exams.
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