Why Your Charitable Deduction Can Disappear (Even With a Receipt)

Two donors in Utah donated 13 acres of land to their city as open space. The land cost $22,000 in 2014 and was appraised at $665,000 by the time of the gift. They had the appraisal, the IRS form, and a signed letter from the mayor. The Tax Court disallowed the entire deduction anyway. The problem: no document explicitly said they received nothing in return. The property deed's standard boilerplate — "ten dollars and other good and valuable consideration" — implied an exchange had occurred.

That's the Martin case from 2024, and it's the one Taylor Schulte walks through on the Stay Wealthy Retirement Show to make a point about paperwork that most donors don't take seriously until it's too late.

The $250 rule

For any single gift of $250 or more, the IRS requires a written acknowledgment from the charity stating the amount given and whether the donor received anything in return. A canceled check doesn't satisfy this, and the acknowledgment must be in hand before you file, not after. In the Durden case from 2012, David and Veronda Durden gave more than $22,000 to their church by check, their church later issued a corrected letter with the right language, and the court ruled it came too late because they'd already filed.

The requirement is straightforward. What catches people is assuming any receipt is the right receipt.

Galas and auctions

For charity events, only the amount above the fair market value of what you received (the dinner, the entertainment) is deductible. Same logic for auctions: only what you paid above the item's fair market value qualifies. The charity's letter should state what they estimate you received. If it doesn't, ask.

QCDs: the IRA-to-charity direct transfer

A qualified charitable distribution lets IRA owners age 70½ or older send money directly from an IRA to an eligible charity and exclude that amount from taxable income. Two hard rules Schulte emphasizes: the money must go directly from the IRA to the charity, and it cannot go to a donor-advised fund. No exceptions on the second point.

The gala version is a trap worth knowing about. If you use IRA money to buy charity event tickets and receive dinner or entertainment in return, Schulte says the entire distribution may fail to qualify as a QCD, not just the ticket portion. That's a full disqualification, not a partial one.

Your IRA custodian's Form 1099-R will report the total distributed but won't flag which portion went to charity as a QCD. You and your tax preparer have to track that separately and retain the charity's acknowledgment letter.

What changes in 2026

Two changes are worth knowing about, both with the caveat that tax legislation can shift between passage and implementation, so confirm with a tax adviser before planning around them.

Standard deduction filers, roughly 90% of taxpayers, currently get no tax benefit from charitable giving. Starting in 2026, they'd be able to deduct up to $1,000 in cash gifts ($2,000 married filing jointly) even without itemizing. Gifts to donor-advised funds don't qualify for this, and the $250 documentation rule still applies.

For itemizers, a new floor means charitable deductions only count above one-half of one percent of adjusted gross income. For someone with $200,000 in AGI, the first $1,000 of giving produces no deduction.

The practical checklist

If you give $250 or more to any charity, read the acknowledgment letter before you file. It needs to say whether you received goods or services in return. If you're using QCDs, tell your tax preparer exactly which distributions went to charity and keep the letters. And if you take the standard deduction, the 2026 cash gift deduction means documentation starts mattering again.

Host Taylor Schulte uses a recent Tax Court case — in which two donors lost a $665,000 charitable deduction over one missing sentence in their paperwork — to walk through the documentation rules that apply to everyday charitable giving, including cash gifts, IRA distributions, and donated stock. The episode also covers new 2026 tax changes that expand who benefits from charitable deductions and add a new floor for itemizers.

---

What was covered

• The Martin case (2024 Tax Court). Clint and Stephen Martin donated 13 acres of land in Highland City, Utah — purchased in 2014 for $22,000 and later appraised at $665,000 — to the city as open space. Despite having an appraisal, the required IRS form, and a signed mayoral letter, their deduction was disallowed entirely. The missing element: no document explicitly stated they received nothing in return. The property deed's standard boilerplate — "ten dollars and other good and valuable consideration" — made things worse by implying an exchange occurred.

• The Durden case (2012 Tax Court). David and Veronda Durden donated more than $22,000 to their church by check in 2007. Their canceled checks and a church letter confirmed the total, but the letter omitted whether they received goods or services in return. The IRS disallowed the deduction. The church later issued a corrected letter — but it arrived after the Durdens had already filed, and the court ruled it came too late.

• The $250 acknowledgment rule. For any single gift of $250 or more, IRS rules require a "contemporaneous written acknowledgment" from the charity stating the amount given and whether the donor received anything in return. A canceled check alone does not satisfy this requirement. The acknowledgment must be in hand before you file your return.

• Charity galas and auctions. When you pay to attend a fundraising event, only the amount above the fair market value of what you received (dinner, entertainment, etc.) is deductible. For auctions, only the amount paid above the item's fair market value qualifies. The charity's acknowledgment letter should state the estimated value of what you received.

• QCD rules and pitfalls. A qualified charitable distribution (QCD) — available to IRA owners age 70½ or older — allows direct transfers from an IRA to an eligible charity, generally excluding the amount from taxable income. Key restrictions: the money must go directly from the IRA to the charity; you cannot route it through a donor-advised fund; and if the QCD is used to buy gala tickets or receive anything of meaningful value in return, the entire distribution may fail to qualify as a QCD rather than merely reducing the deductible portion. The year-end deadline is December 31. The IRS Form 1099-R your custodian sends will not distinguish the QCD amount — you and your tax preparer must track it separately.

• Choosing the most tax-efficient asset to give. Cash, appreciated stock, and IRA dollars can all put the same dollar amount in a charity's hands but produce very different tax results. Donating appreciated stock held in a taxable account can let you avoid capital gains tax on the appreciation while potentially claiming a deduction at full market value. Selling a losing investment first, harvesting the loss, and then donating cash proceeds may be more advantageous in the opposite scenario.

• New 2026 tax rules. Standard deduction filers will be able to deduct up to $1,000 in cash charitable gifts ($2,000 married filing jointly) — a new benefit for the roughly 90% of taxpayers who do not itemize. Gifts to donor-advised funds do not qualify for this new deduction, and the $250 acknowledgment rule still applies. For itemizers, a new floor means charitable deductions only count to the extent they exceed one-half of one percent of adjusted gross income (e.g., the first $1,000 of giving produces no deduction for someone with $200,000 in AGI).

---

Notable claims & predictions

• Taylor Schulte on the acknowledgment rule: "A cancelled check can show that the money left your account and went to a charity, but for gifts of $250 or more, that alone generally isn't enough. The IRS also wants written confirmation of whether you received anything in return — and you generally need that acknowledgment before you file your tax return."

• Schulte on QCDs and galas: "If you use IRA money to buy tickets to a charity gala and receive dinner, entertainment or something else of meaningful value in return, the entire IRA distribution may fail to qualify as a QCD altogether" — not just a partial disallowance, but a full disqualification.

• Schulte on the donor-advised fund / QCD restriction: "You cannot send a qualified charitable distribution from your IRA to a donor-advised fund." This is a hard rule, not a planning preference.

• Schulte on the 2026 standard deduction change: "After the 2018 tax changes, only about 10% of taxpayers were receiving a tax benefit from charitable giving." The new above-the-line deduction for standard filers addresses that gap — but gifts to donor-advised funds are excluded and the $250 documentation rule still applies.

• Schulte on 1099-R reporting: "The Form 1099-R will generally report the total amount distributed from the IRA, but it won't tell you or your tax preparer how much of that distribution went directly to charity as a qualified charitable distribution." The burden is on the donor to communicate this.

---

Fact check

The $250 acknowledgment requirement — accurate. The IRS requires a contemporaneous written acknowledgment for any single charitable contribution of $250 or more, and that acknowledgment must state whether goods or services were provided in return. This is well-established tax law. Schulte's description is accurate.

QCDs cannot go to donor-advised funds — accurate. This is a firm IRS rule. A distribution from an IRA to a donor-advised fund does not qualify as a QCD. Schulte's statement is correct.

The 2026 above-the-line deduction ($1,000 / $2,000) — reported as current law. Schulte presents this as an enacted 2026 rule. At the time of this episode's publication, legislation creating this deduction had been advancing in Congress. Listeners should verify with a tax adviser that the provision is enacted and in its final form before planning around it, as tax legislation can change between passage and implementation.

The itemizer floor (one-half of one percent of AGI) — reported as a 2026 change. Same caveat as above: Schulte presents this as an enacted rule. Confirm the final legislative text with a tax professional before adjusting your giving strategy.

"Only about 10% of taxpayers were receiving a tax benefit from charitable giving" after 2018 — plausible but unverified here. Schulte attributes this to his own prior episodes. The claim is broadly consistent with the well-documented shift toward standard deduction usage after the 2017 tax law roughly doubled the standard deduction, but the specific 10% figure is not sourced in this episode. Treat it as an approximate illustration, not a precise statistic to plan around.

No claims rise to the level of clearly false or materially misleading. The two legislative claims about 2026 rules carry the usual caveat that tax law can change in implementation.

---

Why this matters for you

• If you give $250 or more to any charity, check your receipt before you file. The acknowledgment letter must say whether you received goods or services in return. If you give to a small or newer organization, ask specifically — don't assume the letter will contain the right language. Getting a corrected letter after you've already filed is too late.

• If you're 70½ or older and using QCDs, talk to your tax preparer now. Your IRA custodian's Form 1099-R will not flag the QCD amount. You must tell your preparer which distributions went directly to charity, and you should retain the charity's acknowledgment letter. If you're considering using IRA dollars to buy charity event tickets, Schulte's warning is pointed: the entire distribution — not just the ticket portion — may fail to qualify as a QCD.

• The 2026 standard deduction change is worth a conversation with your tax adviser. If you've stopped tracking charitable receipts because you take the standard deduction, the new above-the-line deduction for cash gifts (up to $1,000 / $2,000 jointly) means documentation matters again — and gifts to donor-advised funds won't qualify for that particular break.