Donating Appreciated Real Estate: When the AGI Limit Costs Deductions

A property bought for $100,000 and now worth $300,000 can be sold or given away. Sold, it produces a $200,000 capital gain. Given to a public charity after more than a year of ownership, it produces a charitable deduction for the full $300,000 and no tax on the gain. The deduction cannot all be taken at once, though, and how much of it is used in the end depends on the donor’s adjusted gross income (AGI).

The charitable real estate calculator applies the rules in IRS Publication 526. Its defaults are the property above, held long term and given to a public charity, an AGI of $400,000, a 40% combined marginal rate on ordinary income, and a 20% rate on capital gains.

The rules that set the timing

• Value. Capital gain property held more than a year is deductible at fair market value. Property held a year or less is deductible only at its cost basis.
• Annual limit. A gift of capital gain property to a public charity, a “50% limit organization” in the publication’s terms, is deductible up to 30% of AGI each year. For other qualified organizations, such as cemetery companies, the limit is 20%.
• Carryover. Publication 526: the excess can be deducted “in each of the next 5 years until it is used up, but not beyond that time”, under the same percentage limit.

So the deduction is used over at most six tax years: the year of the gift and five more. Anything left after that is lost.

The default case

Sold, the property leaves $260,000 after $40,000 of capital gains tax. Given away, it yields a $300,000 deduction, used at $120,000 a year, 30% of $400,000, over three years. At 40% that saves $120,000 of tax. Next to selling, the gift costs the donor $140,000: the $260,000 the sale would have left, less the $120,000 of tax saved. The charity receives the full $300,000; if the property were sold first and the proceeds given, only $260,000 would be left to give.

Income decides whether the deduction is used up

The annual limit scales with AGI, so the same gift is used up quickly by a high earner and only partly by a lower one.

The threshold is simple to compute: the deduction divided by six, divided by 30%. For a $300,000 gift that is an AGI of about $166,667 a year. Below it, part of the deduction expires; at $150,000 of AGI, $30,000 of it is never used. The table assumes AGI stays the same each year. A drop in income during the carryover years, such as at retirement, lowers the limit in those years too.

Above the threshold, income changes only the timing: the same $120,000 of tax is saved over two to four years. Spread over more years, the saving is worth somewhat less in today’s money, which the calculator does not discount.

The kind of gift changes the limits

Short-term property loses most of its value as a deduction, because only the basis counts, while selling it would be taxed at ordinary rates. In a bargain sale the donor sells to the charity below market value. The donor gets $100,000 back, part of which is taxable gain, $13,333 of tax at 20% here, and deducts the $200,000 difference. The cost is lower because cash comes back, and the charity receives less.

What the comparison assumes

• Itemizing every year. The tax saved assumes the deduction is taken at the 40% rate in each year it is used. A donor whose other itemized deductions are small loses part of the value to the standard deduction.
• No other gifts. Other contributions in the same years share the same AGI limits.
• No depreciation recapture. Rental or business property that has been depreciated is treated differently: the recapture part of the gain reduces the deduction.
• Appraisal and reporting. Gifts of property carry appraisal and Form 8283 reporting requirements, described in IRS Publications 526 and 561, and appraisal fees are a cost of giving.
• Law changes from 2026. Tax law changes that take effect in 2026 alter how itemized charitable deductions are calculated for some taxpayers. The calculator applies the percentage limits and carryover in Publication 526 (2025) and does not model those changes.

The calculator shows the deduction schedule, the deduction lost and the cost against selling for any basis, value, income and kind of gift.

Assumptions

Figures computed on October 3, 2026 with the charitable real estate calculator: cost basis $100,000; fair market value $300,000; combined marginal rate 40%; capital gains rate 20%; AGI constant across the year of the gift and the five carryover years; deduction used in the earliest years allowed; no discounting. Rules from IRS Publication 526 (2025), “Limits on Deductions” and “Carryovers”. Amounts are rounded to the dollar.