In order to preserve the favorable tax treatment associated with making charitable gifts, certain rules and limitations apply when making gifts outright to a charity or when establishing a CRT.
For example, an income tax deduction for a gift made directly to a charity or trust is based on the donors adjusted gross income (AGI). That is, in the year that the gift is made, the donor can take a deduction up to an allowable percentage of AGI. Any excess deduction not taken in a given year can be carried over to subsequent years, up to five additional years, subject to the same percentage limitations.
In addition to AGI limitations, the type of charity to which the gift is being made, as well as the type of asset that is being transferred is taken into account.
For example, if a donor has an AGI of $300,000 and has made a gift of $100,000 cash to a public charity, then his deduction in the year of the gift is the full $100,000. That is, a gift to a public charity allows a donor to take a deduction limited to 50% of AGI, unless it is capital gain property.
