United States Food Donation Tax Benefits

Donating surplus food can help businesses support their communities while reducing their tax liability. Internal Revenue Code Section 170(e)(3) provides an enhanced charitable deduction for qualifying donations of apparently wholesome food.

 

The enhanced deduction is available to businesses of all types, including C corporations, S corporations, limited liability companies (LLCs), partnerships, and sole proprietorships.

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The Protecting Americans from Tax Hikes (PATH) Act of 2015 made this broader eligibility permanent.

HOW THE ENHANCED DEDUCTION WORKS
Ordinary inventory donations are generally deductible at the lower of tax basis or fair market value. For qualifying food donations whose fair market value exceeds their basis, the enhanced deduction is generally the lesser of:

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• Tax basis plus one-half of the difference between fair market value and tax basis, or

• Twice the tax basis.

 

For example, food with a tax basis of $100 and a fair market value of $300 may qualify for a $200 charitable deduction, $100 more than its tax basis.

 

The deduction reduces taxable income. The additional tax savings are generally equal the deduction above tax basis multiplied by the applicable marginal tax rate, subject to deduction limits. The donated food’s basis cannot also be deducted as cost of goods sold.

REQUIREMENTS FOR ELIGIBILITY
Qualifying donations must meet the following requirements:

• Wholesome food: The food must be intended for human consumption and meet applicable federal, state, and local quality and labeling standards. Food may qualify even when it cannot be sold because of appearance, age, freshness, size, surplus, or similar conditions.

• Qualified recipient: The recipient must be an eligible tax-exempt Section 501(c)(3) organization.

• Charitable use: The food must support the recipient’s exempt purpose and be used solely for the care of the ill, the needy, or infants.

• No sale or exchange: The recipient cannot exchange the donated food for money, property, or services. A limited regulatory exception permits certain nominal handling fees between organizations.

• Written documentation: The donor must obtain a statement describing the food and receipt date, confirming the recipient’s eligibility and intended use, and affirming that the recipient will maintain adequate records.

• Food safety compliance: Food subject to the Federal Food, Drug, and Cosmetic Act must satisfy applicable requirements when donated and during the preceding 180 days, as applicable.

DETERMINING FAIR MARKET VALUE
Special valuation rules allow qualifying surplus food to be valued using the selling price of the same or substantially similar items, considering both type and quality, at the time of donation or in the recent past. Internal standards, lack of a market, or similar circumstances do not automatically reduce that value.

ANNUAL DEDUCTION LIMITS
Qualifying food inventory deductions are generally limited to:

• C corporations: 15% of taxable income, calculated under the applicable tax rules.

• Other business taxpayers: 15% of aggregate net income from the trades or businesses that donated food, calculated before the food donation deduction.

 

CARRYFORWARDS

Amounts exceeding the applicable 15% limit may generally be carried forward for up to five subsequent tax years. Other taxpayer-level limitations may also apply.

 

Beginning in 2026: Qualifying food inventory contributions remain outside the general 1% corporate charitable deduction floor under Section 170(e)(3)(C). Individual owners claiming itemized deductions, including deductions passed through from a business, are generally subject to a 0.5% adjusted gross income floor on their total charitable contributions.

 

This overview describes federal tax rules. Businesses should consult their tax advisors about eligibility, documentation, and the federal and state tax treatment of their donations.