Deduction carryover is the portion of a charitable deduction that a taxpayer can carryover to his or her next income tax return. Carryover, also know as carryforward, arises because the charitable income tax deductions that a taxpayer may take in a year are limited by the taxpayer's adjusted gross income (AGI).
For most kinds of gifts to public charities, deductions attributable to cash and other non-appreciated property are limited to 50% of the taxpayer's AGI. Within the 50% limit, deductions attributable to appreciated property are further limited to 30% of the taxpayer's AGI. A taxpayer can deduct on the next tax return the portion of a charitable deduction that he or she cannot use because of the 30% or 50% limitations, again subject to the same limitations. The taxpayer can continue to report this carryover, as needed, on up to six tax returns: the tax return for the year of the gift plus the following five tax returns.
Example: Suppose a taxpayer with an AGI of $100,000 makes total cash donations of $30,000 and total appreciated property donations of $30,000 during year 1. The donor has no carryforward from prior years. In year 2, the donor again has an AGI of $100,000 and makes cash donations of $60,000, but no appreciated property donations.
Year 1: cash limitation is $50,000, appreciated property limitation is $30,000
Cash donations = $30,000; deduction taken = $30,000
Appreciated donations = $30,000; deduction taken = $20,000
Carryforward = $10,000 of appreciated donations
Year 2: cash limitation is $50,000, appreciated property limitation is $30,000
Cash donations = $60,000; deduction taken = $50,000
Appreciated donations and carryforward = $10,000; deduction taken = $0
Carryforward = $10,000 of cash donations and $10,000 of appreciated donations