Why is TurboTax treating Donor Advised Funds as "50% limit orgs" under IRS rules for purposes of applying charitable deduction limits.

[timcr7gk]

In general, charitable deductions are limited to 60% of AGI for cash contributions and 30% of AGI for contributions of appreciated assets, such as stock.  But these are not additive.  So if you contribute 30% of AGI with appreciated stock you can only deduct another 30% of AGI with cash.  The cash deduction is taken first, then the appreciated asset deduction.

However, the cap is a little different if contributions are made to certain types of charities, called "50% limit organizations".  In that case, after recognizing the 30% cash deduction you can only deduct appreciated stock up to the lesser of (1) 50% of AGI minus cash contributions or (2) 30% of AGI.  So if your cash contributions were 30% of AGI, this leaves you with a cap of only 20% of AGI.

Bottom line, it is critical that TT treat your contributions correctly as to whether they are to "50% limit orgs".  When I put dummy data into my 2024 return to it treats contributions to my donor advised fund as being to a "50% limit org" and limits my deduction accordingly.  My research tells me that is incorrect, but I don't see any place in TT to override that designation.  

[jtax]

What are your sources that DAFs are not 50% limit organizations? Isn't a DAF a public charity pursuant to IRC  § 170(b)(1)(A)(vi)?

[SteamTrain]

Well...maybe I'm wrong, but I thought a 50% charity was the top level charity.

Thus a 50% charity does now allow for a 60% of AGI cash donation....temporary since 2018, but now permanent.

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As to how the non-cash donations get mixed in to the limits, I'm clueless, but I've never approached any of the limits, so I've never investigated those details

BUT

In the 2024 desktop software, in a test file....I put in a $30,000 cash donation to a DAF (checked as 50% Charity) for a person with $45,000 AGI, and it limited the donation to 27,000.....which was 60% of the 45,000....so at least the all cash part seems to be working.

[timcr7gk]

Good question for which I don't have a clear answer.  But note that 170(b)(1)(A)(vi) refers back to organizations covered by (c)(2) whereas it appears that DAFs are considered sponsoring organizations under 501(c)(3).  See Donor-advised funds | Internal Revenue Service

It appears to me that the widely stated cap on charitable contributions of 60% for 2025 going down to 50% starting next year is a general rule for most types of contributions but that certain types of contributions are still limited at 50%.  So it would be based more on the type of recipient rather than just your AGI.  But that's little more than a guess given these confusing regs.

I raise it in this forum only because I don't recall coming across a dialogue box in TT asking me to declare whether the recipient is a 50% max recipient.  In any event, this is a one time issue for me this year because stars aligned where it makes sense to max out on charitable.  So I'm going with the most conservative interpretation which means stopping at 50% of AGI.

[timcr7gk]

Thank you.  See my reply to the prior question below.

As to prioritization of contributions, I think the order is to first apply unused carryover from prior years, then cash contributions, then appreciated assets like stock.  So my approach was to use the full 30% permitted for appreciated stock to get max tax savings and then limit cash contributions to 20% so the total would not go over the assumed max of 50% under the most conservative assumptions.

As noted, this a first time / one time issue for me so I decided to cap it at the safer 50%.  Its beyond my ability to make any further sense of it.  Thanks.