Monday, January 21, 2013
RULES FOR DEDUCTING NON-CASH CONTRIBUTIONS
In light of the recent report by the Treasury Inspector General for Tax Administration which found that “Taxpayers Don’t Comply With Reporting Requirements for Noncash Charitable Contributions” I thought it would be appropriate to review the rules for claiming a “non-cash contribution”.
You can claim a deduction for the “fair market value” of property, including used items, donated to charity. According to the IRS, fair market value is the price a “willing, knowledgeable buyer would pay a willing, knowledgeable seller when neither has to buy or sell.”
You are responsible for determining the fair market value of the items you are donating. The charity to which you make the donation is not required to, and in most cases will not, provide you with a value. Click here for the Salvation Army valuation guide.
If the total value of items donated to a charity in a single day is more than $250.00 you must have a written acknowledgement from the donee organization with the name and address of the charity, the date of the contribution, and a description of the items donated. The acknowledgement must also indicate whether you were provided any goods or services by the charity in exchange for the donation (this is very important).
You must complete and attach to your Form 1040 IRS Form 8283 if you are deducting “non-cash” contributions totaling more than $500.00. The following information will be needed:
• the name and address of the charity(ies) to whom you made the donation(s),
• the date of the contribution(s),
• the fair market value of the items donated, and
• how you determined the value – i.e. “Salvation Army valuation guide”
If any one individual item has a value of more than $500.00 you must also list
• the date you acquired the property
• how you acquired the property – i.e. purchase, gift, inheritance, exchange
• the cost or adjusted basis of the property
If any one individual item has a value of more than $5,000.00 you must provide a written appraisal of the item and complete Section B of IRS Form 8283. The appraisal must be made by a “qualified” appraiser who has earned an appraisal designation from a recognized professional organization or has otherwise met minimum education and experience requirements prescribed by IRS regulations, regularly performs appraisals for compensation, demonstrates verifiable education and experience in valuing the type of property being appraised, and has not been prohibited from practicing before the IRS at any time during the 3-year period prior to the date of the appraisal. To find a qualified appraiser go to www.appraisers.org, the website of the American Society of Appraisers.
The cost of the appraisal is not included in the amount of the charitable donation. You can, however, deduct the appraisal fee as a “miscellaneous” itemized deduction, subject to the 2% of AGI limitation.
Whenever you contribute used appliances, electronics, books, clothing, furniture or household items you should always make and keep a detailed listing of the items donated with the condition and value of each set of items (i.e. 6 pairs of men’s pants, good condition, $60.00, 5 pairs of men’s shoes, good condition, $75.00). You may want to attach a copy of the listing to Form 8283 when filing your Form 1040.
You cannot deduct the contribution of a used item of clothing or household item to a church or charity unless the item is in at least "good" condition (except for a single such item with a documented appraised value of more than $500). Donations of clothing and household items with a minimal monetary value, such as used socks or underwear, are also not deductible.
When donating used clothes and household items to charity you should go with the ‘old reliables’ like Goodwill Industries, the Salvation Army, Vietnam Veterans of America or your local church – this way you are sure to be giving your items to a legitimate charity. In many cases the charity will come to you to pick up your donations. And if you are putting your donations in a “drop-off box” make sure the name of the charity is clearly indicated on the box. While these boxes may be convenient it is “more better” to drop off your donation at a local Goodwill or Salvation Army store or donation center, where you can get a signed receipt.”
If you purchase new items to contribute to a food, toy or clothing you can deduct the actual cost of the items donated. The same reporting and documentation requirements discussed above for used items will apply. You should make a separate purchase of the items you will donate – do not group together with the purchase of items for your personal use – and save the store receipt.
Be advised that you must donate the items to a qualified charity. You cannot claim a deduction for clothes or other items given directly to an individual or family – such as a winter coat you give to a homeless person, or foodstuffs given to a family whose home has burned down or was destroyed by SANDY. You must give the item to the Salvation Army or the Red Cross, who will in turn distribute it to a needy individual or family.
When you donate a motor vehicle (car, motorcycle, boat, or airplane) to a church or charity the amount you can deduct depends on what the organization does with the donated vehicle.
(1) If the organization sells the vehicle without significant interim use or material improvement your tax deduction is limited to the gross proceeds from the sale.
(2) If the organization intends to temporarily or permanently use the vehicle in its operations, or make "material" improvements to the vehicle before selling it, or sell the car to a "needy" individual at a price that is significantly below market value, or give the car to such an individual, you can deduct the "fair market value" of the vehicle.
You can use the "private party value" for the vehicle, adjusted for mileage and condition, as listed in the Kelly Blue Book (www.kbb.com) or a similar established used vehicle pricing guide. As discussed above with other “non-cash” contributions, if the fair market value of the vehicle is more than $5,000.00 you must obtain a formal appraisal.
In order to claim a deduction of more than $500.00 for donating a motor vehicle to charity, you must include Copy B of the IRS Form 1098-C, which is completed by the charity, with the filing of your Form 1040.
The Form 1098-C will include the name and Taxpayer Identification Number of the donee organization, the vehicle identification number, the date of contribution, and information on what the charity did with the vehicle. Form 1098-C must be issued within 30 days of either the date of the contribution or the date of the disposition of the vehicle by the donee organization. The charity can give you a statement in lieu of Form 1098-C as long as it contains all the necessary information discussed above.