United States

Enhanced deductions for donations for the ill, needy, or infants

Special rule for qualified contributions of ordinary income property


When a taxpayer donates inventory or a depreciable asset, the general rule regarding donations of ordinary income property restricts that taxpayer’s charitable contribution deduction to their basis in the donated asset. However, if the receiving organization will use that asset to care for the ill, needy, or infants, the donor taxpayer will qualify for an increased deduction if the qualified contribution (QC) rules of sectopm 170(e)(3) are satisfied. 

Qualified contributions in general

With the exception of donations of food inventory (discussed below), the primary requirements of section 170(e)(3) are as follows:

  1. The taxpayer is a C corporation;
  2. The donated item is inventory, stock in trade, or depreciable or real property used in a trade or business;
  3. The taxpayer receives no money, property, or services in exchange for the donation;
  4. The donor is a section 501(c)(3) exempt organization that will use the property (a) to care for the ill, needy, or infants and (b) in a manner related to its tax-exempt purpose; and
  5. The taxpayer receives a written statement from the exempt organization that satisfies the requirements of Treas. Reg. 1.170A-4A(b)(4).

If these requirements are met, the taxpayer may deduct, in addition to asset’s basis, an additional amount of up to one-half of the asset’s unrealized appreciation. However, this additional amount is limited by the fact that the total deduction may not exceed twice the taxpayer’s basis.

To illustrate, assume an asset has a basis of $100 and a fair market value (FMV) of $200. Assuming its donation satisfies the QC rules, the charitable contribution deduction would be calculated as follows:

However, if the FMV of the asset was $1000 rather than $200, the charitable contribution deduction would be limited to $200 (twice the asset’s basis) rather than the $550 that would result from the calculation above (basis + ½ of the unrealized appreciation).

Donations of food inventory

While C corporations are allowed QC treatment for a wide range of ordinary income property, other taxpayers are only allowed QC treatment for donations of food inventory. The QC requirements for donations of food inventory are similar to the above, except that

  1. The taxpayer does not have to be C-corporation, and
  2. There is an additional restriction that the food must be “apparently wholesome” food or beverages.

This increased deduction may be especially beneficial to food manufacturers and retailers who donate items that, while “wholesome,” cannot or will not be sold due to the internal standards of the taxpayer, a lack of market, or similar circumstances (for example, wholesome, but cosmetically sub-par foods). Under section 170(e)(3)(C)(v), taxpayers may ignore such factors when determining the item’s fair market value and may base the FMV on the price for which similar items were sold at the time of donation.

In addition to the increased QC deduction, when corporate taxpayers donate food inventory they also benefit from an increased yearly charitable contribution limitation. Donations of food inventory are subject to a yearly limitation of 15 percent of income rather than the normal 10 percent limitation. However if a corporation makes both QCs of food inventory and other donations, the standard 10 percent limitation must be reduced by the deduction allowed for QCs of food inventory.

While the special rule of section 170(e)(3) provides a sizeable benefit to taxpayers making qualified contributions, the requirments of that code section and its corresponding Treas. Reg. 1.170A-4A are fairly detailed. As the above discussion provides only a brief summary of these requirements, taxpayers wishing to take advantage of this special rule should consult their tax advisors.


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