What is the difference between a tax credit and a tax deduction? What is the downfall of donating property to charities?
A tax deduction is just that a deduction that comes off of your gross income to reduce the amount of income that you will be taxed on.
A tax credit comes directly off of your tax bill. If you owe 10k in taxes if you have a 2k tax credit you will owe 8k.
Not sure about the implications of donating property to charity.
A deduction is a reduction in the total taxable income
A credit is a reduction in the total tax due.
For instance, if your total taxable income is $65,000 and you get a $1,000 tax deduction, your taxable income goes from $65K to $64K and your total tax due would drop from $9,586 to $9,336 a difference of $250.
Using the same numbers ($65K income, married filing jointly), a $1000 tax credit would drop your total tax due from $9,586 to $8,586.
Keith
Tax Credits tend to favor lower income tax payers (they are in a lower tax bracket).
Tax Deductions favor higher income tax payers.
The implications of donating the property to charity are the same as donating any other item to charity. You can deduct the ‘value’ of the donation from your AGI (tax deduction). That ‘value’ has to be independently determined and documented.