Noncash Gifts

If you donate property to a charity, the value of the donation is sometimes difficult to determine. Generally, the value of the gift is the fair market value of the property at the time of the donation, but there are some exceptions to this rule.

Clothing and household items. If you're donating used clothing, furniture, household goods, toys, books, etc., the value of the gift is the same as you would pay in a thrift or consignment shop. You should keep an itemized list of the goods you donate and, if possible, get the charity's representative to stamp or sign it; at a minimum, they should give you a receipt for the goods you donate showing the name of the charity and date.

Vehicles. If you are donating a vehicle, which includes a car (or other motor vehicle), a boat or an airplane to a charitable organization, the rules for determining the value and claiming the deduction are complex. The charitable organization must provide you with a Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, or a similar statement, for donations over $500.

If the fair market value of the donated vehicle is less than $500, you can claim the fair market value as a deduction. The charitable organization must provide you with a written statement acknowledging your donation if the fair market value was at least $250 or you will not be able to claim any deduction.

However, a donation of more than $500 is limited to the smaller of either:

• The gross proceeds the organization receives from the sale of the vehicle - provided the organization sold it "as is" and did not significantly improve it's value and did not sell it at a reduced value to a needy individual, or
• The fair market value of the vehicle (adjusted for any appreciation) on the date you donated it.

Example Ray donates a used car to a qualified organization. He bought it 10 years ago for $12,000. A used car guide shows the fair market value for this type of car is $3,000. However, Ray's Form 1098-C from the organization shows that the car sold for $1,900. The organization sold it "as is" and did not sell it to a needy individual at a reduced cost. Ray's deduction is limited to $1,900. He must attach Form 1098-C and Form 8283 to his return.

To learn more about the pitfalls in this area, please review IRS Publication 4302, A Charity's Guide to Vehicle Donations, and IRS Publication 4303, A Donor's Guide to Vehicle Donations.

Inventory. If you donate items from your inventory (for example, you're a restaurant owner and you donate the food for a charitable event) you can deduct the cost of the items to you, not their value.

Property that has increased in value. If you donate property that has increased in value, the amount that you can deduct depends on whether, if you had sold the property, you would have realized ordinary gains or capital gains. For ordinary gains property (most property you held for a year or less, works of art you created, or inventory) you can deduct only the lower of fair market value at the time of the gift, or your basis in the property (which is generally your cost).

However, if the property would have resulted in capital gains if you had sold it, you can use the fair market value at the time of the gift. This includes stocks and bonds held for more than one year, real estate, and depreciable business property held for more than one year.

Property that has declined in value. If you donate property that has declined in value since you acquired it, your charitable contribution deduction is limited to the property's fair market value at the time of the contribution. Unfortunately, you can not claim a deduction for the difference between your basis in the property and the fair market value.

Documenting noncash gifts. For noncash contributions under $250, you need to get a receipt from the charity showing its name, the date, and a reasonably detailed description of the property. You also need to keep records showing the property's fair market value, and its cost if it has appreciated in value.

For noncash contributions of $250 to $500, you must get a written acknowledgement of your contribution from the charity, stating how much (if anything) you received in return for your gift.

If you made total noncash gifts over $500 for the year, you must complete and attach to your tax return IRS Form 8283, Noncash Charitable Contributions.

If any single gift or group of similar gifts was valued at over $5,000, you must also get an appraisal of the item from a qualified appraiser. The cost of the appraisal itself is not a charitable contribution, but can be deducted as a miscellaneous deduction on Line 23 of Schedule A.

Planning Tools You can download Form 8283 and Schedule A to aid in your financial planning.

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