Menu

Tax Strategies & Credits

Tax Deductions: Proving Noncash Charitable Contributions

by
Karen C. Drescher, CPA, CGMA
on
7/17/2016
Tax Deductions: Proving Noncash Charitable Contributions

Charitable contributions make great tax deductions, but when making donations of non-cash items such as household goods that you no longer want, or used clothing, things can get complicated. The problem lies in establishing how much each item is worth, as the tax code requires that the amount should be established as the price that a buyer would be willing to pay for it – that is, the fair market value (FMV). 

Fair Market Value

So how do you determine fair market value? You can’t go by age, and you also can’t necessarily base it on condition. The real question is about its desirability. Something may be clearly used but be a highly popular item – think a pair of classic Adidas running shoes or a jersey bearing the number of a popular athlete. In this case, even though the item may have been worn many times, it may have a fairly high fair market value.

By contrast, consider a piece of clothing that has never been worn, and which even still has the tags on it, but which was a fad item from a few years back that nobody wants to wear today. Something like a 1970s leisure suit. Even though it is brand new, it has a fair market value of near zero, as it is something that nobody would want to wear.

Though in most instances of everyday items being donated, a visit to a local consignment store or Goodwill can answer questions on fair market value, there are some instances where it may be worthwhile to take the item to a qualified appraiser who can give you a more exact value.

Though this may seem like overkill, it may be worthwhile when donating large quantities or items that you think may have a high value – it’s much better to spend the little bit of time than to get into trouble with the IRS. 

Documenting Non-Cash Charitable Contributions

Once you’ve decided on a value and you have either dropped off your donation at a charity box or left it to be collected by a charity’s pick-up driver, you need to make sure that you have documentation that is acceptable to the IRS. Don’t make the mistake of thinking you can just file away the receipt of doorknob hangar that the driver leaves behind – that is often not good enough for the IRS.

In fact, there was a recent case (Kunkel T.C. Memo 2015-71) heard in the United States Tax Court where a taxpayer was not permitted to take the deductions he had entered on his tax return for charitable contributions because the documentation he had provided — those very doorknob hangars — was considered insufficient. The ruling read in part, “these doorknob hangars are undated; they are not specific to petitioners; they do not describe the property contributed; and they contain none of the other required information.” 

If you want to get the fair market value of goods that you have given to charities, you need to make sure that you have all of the details that the IRS requires. Those requirements vary based on the total value of the donation. Here is a breakdown of what is needed for each value category:

Deductions of Less than $250:

This category has minimal requirements.

All that is needed is a receipt from the charity to which you made the donation that shows their name, the date that you gave the property and the location where it was donated, and a reasonably detailed description of the item.

The IRS recognizes that smaller value donations are often left at drop sites such as the charity boxes found in parking lots or outside of the charity locations. In these instances, no receipt is necessary, as getting one would be impractical. It is important to note that socks and undergarments are specifically not allowed as deductible items. 

Deductions from $250 to no more than $500:

This category has more rigorous requirements. The taxpayer needs to retain a written receipt from the charitable organization that shows the same information as above (name of the organization, date and location of the contribution, and a reasonably detailed description of what was donated).

In addition, the receipt needs to indicate whether or not, in exchange or appreciation of the donation, the taxpayer received any goods or services beyond membership benefits or token items. If these types of goods or services were given, then the charity needs to provide a description and a good faith estimate of the value of what was given.

In some cases, a religious organization may provide an intangible benefit such as admission to a religious ceremony in exchange for the contribution.

When this is the case and the item or service is not something that would be sold in a commercial transaction, this must be indicated on the receipt, and no value needs to be ascribed. 

For contributions in this category, when multiple contributions of $250 or more have been made, the receipt must recognize each contribution, either through an individual acknowledgement of each contribution or a single receipt that lists the total.

Deductions over $500 but not over $5,000:

Once donations to a charity exceed $500, the IRS requires that a specific form — Form 8283 — is used to document the contributions. This is to be completed and attached to the taxpayer’s income tax return, and needs to contain all of the information required for the $250 to $500 category detailed here. The form also requires additional details, including:

  •  How the item that was donated was originally acquired. This could include having received it as a gift or inheritance, having purchased it, or having received it in an exchange.
  • When the item that was donated was originally acquired. If the item is something that the taxpayer actually manufactured or created, then it should include the date that it was completed.
  • For donated items held by the taxpayer for less than twelve months, the form should indicate the cost or basis, and any adjustments to this basis. For donated items held for twelve months or longer, the same information if it is available, though this is not applicable to publicly traded securities.

If any of these details are not available, the taxpayer is required to attach a note that explains why it is not available.

Deductions over $5,000: This category of contributions requires the highest level of documentation, including time-sensitive appraisals provided by a “qualified appraiser.” Additional documentation is often required and will be closely reviewed, so those making non-cash contributions at this level are advised to call our office for assistance and guidance. 

If you are donating a number of items that fall into the same category in the same year, you are not permitted to break them down into individual contributions in order to avoid the higher levels of documentation required.

Their collective value needs to be combined and the appropriate level of documentation needs to be provided. There are specific generic categories for which this rule applies. They include: 

  • coin collections
  • art
  • clothing
  • jewelry
  • land
  • buildings
  • privately-traded stock
  • books
  • furniture

 What this means in effect is that if you have an art collection and you donate three different paintings worth $2,000 each to three separate charities in the same year, because the total value is $6,000 you are required to meet the requirements of donations over $5,000. Each would need to be appraised by an appraiser who meets the IRS’ highly-specific qualification requirements. 

To make things easier on yourself, you can download the Noncash Charitable Contribution Statement form, which can be filled out and presented to the representative of any charity that you donate to for completion. The form is not an IRS form, but does provide for all of the necessary details, including notation of any goods or services provided by the charity.

share this post
Search for matches...
Karen C. Drescher, CPA, CGMA

Karen C. Drescher, CPA, CGMA

Whether it is helping a individual or a Georgia small business with their taxes, or offering to be a backstop through their difficulties, Karen is always there for her clients. When you are a client of Karen's, she always tries to make you feel comfortable in a casual and friendly environment.

Recommended Professionals

In the face of economic uncertainty, TaxBuzz is the industry's most up-to-date tax information.

Join 60,000 who get our weekly newsletter. No spam.

Need help selecting a firm?

Use our specialized search engine and get matched to the best accounting and tax firm for your needs.

Get Started

Related Posts

Latest Posts