Charitable Contributions and Gifts

Charitable organizations serve the public through education, religion, science, health care, and other humanitarian acts. These organizations do good and encourage others to do good. U.S. federal policies and its federal tax code recognize their social value through special certain federal tax laws that encourage charitable giving. 

One such law, Internal Revenue Code Section (IRC) 170, allows individuals and corporations to deduct “charitable contributions and gifts” made to recognized tax-exempt organizations. Section 170(a) provides that a deduction is allowed for any charitable contribution made within the taxable year, provided it is verified under regulations prescribed by the Secretary of the Treasury.

What Counts as a “Charitable Contribution?”

Under IRC §170(c), a “charitable contribution” means a gift made to or for the use of certain qualified entities, including:

• Governmental units — The United States, any state, or political subdivision, only if the contribution is for exclusively public purposes.
• U.S.-based charitable organizations — Nonprofit corporations, trusts, funds, or foundations organized and operated exclusively for religious, charitable, scientific, literary, educational, or similar exempt purposes. They cannot distribute profits to private individuals or shareholders and cannot engage in political campaigns or substantial lobbying.
• War veterans’ organizations — Posts, auxiliaries, or related trusts or foundations organized in the U.S. and operated without profit for private individuals.
• Domestic fraternal societies — Fraternal orders or associations operating under the lodge system, organized for religious, charitable, scientific, literary, educational purposes, or for the prevention of cruelty to children or animals, and operated without profit for private individuals.
• Cemetery companies — Corporations owned and operated exclusively for burial purposes, not-for-profit, and restricted to activities necessary to their purpose.

To qualify for a deduction, the organization must meet the requirements of Section 501(c)(3), including that no part of its earnings benefits any private individual and that it does not engage in political campaigns or substantial lobbying. So, the first step for any donor is to confirm that the organization is recognized by the IRS as a qualified charity.

As with many provisions of U.S. tax law, IRC Section 170 has been updated by legislation over time. Most recently, the One Big Beautiful Bill Act (OBBBA) Act of July 4, 2025, made modifications to charitable contribution rules. In this post, we will focus on the current law as it applies to Section 170 and examine how the rules apply to both individual and corporate donors.

Charitable Contributions and Gifts by Individuals

For individuals, charitable deductions are allowed to the extent that total contributions do not exceed 40 percent of the taxpayer’s contribution base for the taxable year. Eligible recipients include:

• Churches or associations of churches
• Educational organizations that maintain a regular faculty, curriculum, and enrolled students at the place where educational activities are conducted
• Medical research organizations, including hospitals or research entities conducting continuous active medical research in conjunction with a hospital, provided contributions are spent for research within five years
• An organization that receives a substantial portion of its support from the federal or state government, a political subdivision, or from the general public, and that is organized and operated exclusively to hold, invest, and administer property for the benefit of a college or university that is an agency or instrumentality of one or more states or political subdivisions.
• Other governmental-supported organizations receiving substantial support from a governmental unit or public contributions
• Private foundations described in IRC §170(f)(F)
• Organizations described in IRC §509(a)(2) or (3)
• Agricultural research organizations engaged in continuous, active research in conjunction with a land-grant college or university, with contributions required to be used for research within five years of the donation
• Federally chartered veterans’ organizations described in IRC §501(c)(19)

Individual donors to other charitable organizations are subject to different limitations and must understand those limitations when making charitable contributions. Individuals should consult experienced tax counsel when considering charitable contributions, gifts, or bequests.

Charitable Contributions and Gifts by Businesses

The tax rules governing charitable contributions and gifts by corporations and other businesses are as complex, if not more complex, than those for individual taxpayers. This is primarily because corporations face taxable income limitations rather than the adjusted gross income limitations that apply to individuals.  In general, corporate charitable contributions are subject to the following rules:

• General limitation. Any charitable contribution otherwise allowable as a deduction under this section may be deducted only to the extent that the total of such contributions exceeds 1% of the corporation’s taxable income but does not exceed 10% of its taxable income for the taxable year.
• Qualified conservation contributions by corporate farmers and ranchers. A qualified conservation contribution made by a certain corporate farmer or rancher (as defined in IRC §170(b)(1)(E)(v)), whose stock is not publicly traded, may be deductible to the extent it involves property used in agriculture or livestock production and remains available for that purpose.
  • Carryover. If contributions exceed the applicable limit, the excess may be carried forward and treated as a charitable contribution in each of the 15 succeeding taxable years, following the rules in IRC §170(d)(2).
• Qualified conservation contributions by Native Corporations. Similar treatment applies to Native Corporations that contribute land conveyed under the Alaska Native Claims Settlement Act. The same 15-year carryover applies.
• Computation of taxable income. For purposes of these limits, taxable income is computed without regard to this section, Part VIII (except §248), net operating loss carrybacks under §172, capital loss carrybacks under §1212(a)(1), and §199A(g).

As with individual contributions, businesses must navigate complex rules to determine whether a charitable contribution qualifies for a deduction. Tax law often reflects the legislature’s use of the tax system to pursue social policy goals, and charitable contribution rules are a prime example of this. To understand the requirements, taxpayers—whether individuals, trusts, or corporations—must first confirm that the organization is a recognized charity for federal tax purposes. The next step is to determine which rules apply to the type of contribution, whether cash, services, property, current, or future contributions. Different rules apply depending on the category of gift.

Transaction Structure Matters in Property-Based Charitable Contributions

How a contribution is structured can determine its deductibility. An outright donation of a warehouse to a 501(c)(3) organization is generally deductible at its fair market value, provided the donor retains no control and receives no goods or services in return (Transamerica Corp. v. U.S., 15 Ct. Cl. 420 (1988)).

Donating the use of property, however, such as allowing a charity to occupy a warehouse rent-free or at reduced rent, raises a different issue under IRC §170. The IRS treats this as a donation of a partial interest, which is not deductible under §170(f)(3)(A), and the regulations similarly classify the right to use property as a nondeductible partial interest (26 C.F.R. §1.170A-7).

A limited exception appears in Passailaigue v. United States, where the court allowed a deduction for the rent-free lease of property to a charity, characterizing the arrangement as a gift rather than a service (224 F. Supp. 682 (1963)). This case is fact-specific and remains unusual.

Consistent with the IRS’s general rule, other courts have declined to treat the free use of property as deductible. In Threlfall v. United States, for example, the court held that permitting a charity to use building space rent-free did not constitute a charitable contribution (302 F. Supp. 114 (1969)). These authorities underscore that the donation of use—as opposed to the donation of ownership—is ordinarily nondeductible unless the transaction is structured to convey a full, transferable interest.

Why Legal Counsel Matters When Donating Warehouse Space

The deductibility of a rent-free or reduced-rent warehouse donation depends on the specific facts and circumstances, including the lease terms and whether the arrangement constitutes a gift of property or merely a service. Consultation with tax planning and estate planning lawyers is essential to ensure the contribution meets IRS requirements and that the intent of the parties as reflected in the transactional documents is clear.

This law blog is written by attorneys at Coleman Jackson, P.C., located at 6060 North Central Expressway, Suite 620, Dallas, Texas 75206, for educational purposes only. It does not create an attorney-client relationship between this law firm and the reader. You should consult with legal counsel in your geographic area regarding any legal issues impacting you, your family, or business.

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