Are Give Now, Pay Later Gifts Tax Deductible?
Way back in February of 1913, as a Valentine's Day gift (of sorts) to the American people, the Congress of The United States of America ratified the 16th Amendment, establishing Congress' right to impose a Federal income tax. As the National Archives explains, while fewer than one percent of households were subject to the new tax for the first few years, and that rate was capped at 15 percent, things changed in 1917.
By 1917, the U.S. had to pay for the First World War. As a result, the cap was blown off of the tax rate and set at 67 percent. Leaders, like a regent of the Smithsonian Institution, and oh by the way U.S. Senator from New Hampshire, Henry F. Hollins worried that tax increases would mean that the charitable would hold the purse strings so tightly that Philanthropy in the country would die, and a wartime government would become responsible for the burdens that nonprofit organizations shoulder.
So, it was Congress to the rescue, as the individual income tax deduction for charitable donations was unanimously passed into legislation, and we the people received some reprieve for our goodwill.
Now, since 1917, Americans have gained numerous new ways to make charitable donations and receive a lawful tax credit, and caps on these credits have been imposed. Those in the nonprofit sector have become well-versed in how to credit donors, how much to credit them, and even when tax credits don't apply.
So, when new ways to make charitable gifts arise, so do new questions. Give Now, Pay Later (GNPL) is no different. As more and more donors choose to make charitable donations through Give Now, Pay Later, nonprofits and donors have a common question:
Is a Give Now, Pay Later gift tax deductible?
Per IRS Publication 526, which explains how to claim a deduction for charitable contributions, 'If you contribute borrowed funds, you can deduct the contribution in the year you deliver the funds to the charity, regardless of when you repay the loan.' Yes, Give Now, Pay Later gifts are tax deductible.
Additionally, for those who represent colleges, universities, or independent schools, CASE issues an update on its Global Reporting Standards in 2023. This common set of standards, guidelines, and definitions for reporting the results of educational philanthropy activities at schools, colleges, and universities, includes best practices for the tax deductibility of charitable giving.
In its fifth chapter, Donor Types and Sources, Section 5.1 of CASE's Global Reporting Standards states:
5.1 CREDIT TO LAST ENTITY - ...if organization A contracted with organization B to serve as their agent... organization A remains the legal donor.
Or, as John Taylor, a leader in the field of Advancement, of John H. Taylor Consulting, LLC, previous Associate Vice Chancellor for Advancement Services at NC State University, and previous Director of Alumni & Development Resources at Duke University, so succinctly put it in an aasp Connect forum:
"...the original donor is the legal donor."
So, the next time you get the question, "Are Give Now, Pay Later gifts tax deductible?" you can confidently answer, "Yes."