Can depreciation recapture upon selling an investment property be offset by a separate charitable contribution (that's so large I won't otherwise be able to use it all)?

[JHans1]

I made a charitable contribution valued at $900,000 last year that I will never be be able to fully use within 5 years given my relatively low taxable income. However, I have a few rental properties that I have been depreciating for several years. If I sell one of them, will the otherwise unused charitable contribution deduction kick in to offset the depreciation recapture taxes?

[Carl]

Your gain on the sale of rental property is "above the line" and included in the amount on line 6 of the 1040.

Making a charitable donation has no effect on that and does not lower your AGI, as a charitable donation is reported as an itemized deduction on SCH A and is a "below the line" contribution. That means your itemized deductions are included on line 9 of the 1040 (only if they are more than your standard deduction), while your AGI is on line 8. That makes your charitable contributions a "below the line" deduction while your gain on the sale of the rental is "above the line."

[Anonymous]

yes it will offset some of the gain from selling property.  assuming what you donated was capital gain property, you can only use an amount = 30% of adjusted gross income.  or the limit could be 20% or something else.

not knowing any details about the contribution makes it impossible to give you an exact answer.

i have provided a link to IRS PUB 526 which discusses charitable contributions in more detail. This also assumes that your itemized deductions will exceed your standard deduction. 

https://www.irs.gov/pub/irs-pdf/p526.pdf  

[JHans1]

Thanks so much for your reply, Carl! I'm a bit confused though: If the depreciation recapture is included in the AGI, then isn't the itemized deduction going to be larger based on some percentage of the large charitable contribution (which was a book collection) that isn't currently being fully used due to it being limited to something like 50% of my AGI? For example, generally speaking, if my depreciation recapture adds $50,000 to my AGI and my charitable contribution dedication is capped at something like 50% of my AGI, wouldn't I only be paying taxes on $25,000 of the depreciation recapture (so it wouldn't necessarily be a 1-to-1 deduction, but I would presumably get a 50% discount on the depreciation recapture taxes)?

[JHans1]

Thanks, hackitoff. Our messages crossed so I didn't see yours before posting my reply to Carl, but it looks like you are seeing it in the same was thinking/hoping it might work in my reply to Carl.

[Critter-3]

Ok ... let's rethink this ... you are assigning the Sch A deduction against the one income item by itself.  A return is not completed in a vacuum ... it is one long math problem.   

All Income - adjustments = AGI   

AGI - (standard or itemized deductions) = taxable income.   

Taxable income x appropriate tax rate = fed taxes owed.  

An increase in AGI will allow more of the Charity contribution to be deductible automatically and the program will compute the amount for you ... what cannot be taken this year is carried forward to be used as allowed. 

[Critter-3]

https://www.forbes.com/sites/berniekent/2020/04/03/giving-more-than-60-of-income-to-charity-cares-ac...