Charitable Contribution Deductions

Jeffrey Arnol, KOS Managing Partner

jarnol@koscpa.com

Most people are aware that contributions to qualified charitable organizations are deductible for tax purposes. That being said, it is important that everyone is knowledgeable about the substantiation requirements for both cash contributions as well as the rules that apply to contributions of non-cash property such as clothing or household items.

The general rule is that for a contribution of cash, check, or other monetary gift, regardless of amount, you must maintain a bank record or a written communication from the donee organization showing its name, plus the date and amount of the contribution. Any other type of written record, such as a log of contributions, is insufficient.

If the contribution is worth $250 or more, stricter substantiation requirements apply. No charitable deduction is allowed for any contribution of $250 or more unless you substantiate the contribution with a written receipt from the donee organization. You must have the receipt in hand when you file your return (or by the due date, if earlier) or you won’t be able to claim the deduction. If you make separate contributions of less than $250, you won’t be subject to the written receipt requirement, even if your contributions to the same charity total $250 or more in a year.

The receipt must set forth the amount of cash and a description (but not the value) of any property other than cash contributed. It must also state whether the donee provided any goods or services in return for the contribution, and if so, must give a good-faith estimate of the value of the goods or services.

If you received only “intangible religious benefits,” such as attending religious services, in return for your contribution, the receipt must say so. This type of benefit is considered to have no commercial value and so doesn’t reduce the charitable deduction available.

For a contribution of property other than money, you generally must maintain a receipt from the donee organization that shows the organization’s name, the date and location of the contribution, and a detailed description (but not the value) of the property.

If the total charitable deduction you claim for non-cash property is more than $500, you must attach a completed Form 8283 (Noncash Charitable Contributions) to your return or the deduction is not allowed. Among the information required on that form is the name and address of the donee organization, a description of the donated items, date of contribution, date acquired (various is ok), donor’s cost or estimated basis, fair market value of items donated, and the method used to determine the fair market value (such as thrift shop value or comparable sale).

For donated property of an item or group of similar items with a fair market value of more than $5,000, you are generally required to obtain a qualified appraisal and to attach an appraisal summary to the tax return. The phrase “similar items” means property of the same generic category or type (whether or not donated to the same donee), such as stamp collections, coin collections, paintings, photographs, books, nonpublicly traded stock, land, buildings, clothing, jewelry, furniture, electronic equipment, household appliances, toys, everyday kitchenware, china, crystal, or silver. For example, if you give clothes to three charities and you deduct $2,000, $2,500, and $900, respectively, your claimed deduction is more than $5,000 for these items of clothing. You must get a qualified appraisal of the clothes and for each charity and you must attach a fully completed Form 8283, Section B, to your tax return.

We are often asked “what is the fair market value” of the items we donated. When you donate non-cash items such as clothing or household items, the fair market value is usually far less than the price you paid for them. There are no fixed formulas or methods for finding the value of items. You should claim as the value the price that buyers of used items actually pay in used clothing or furniture stores, such as consignment or thrift shops.

The fair market value of used household items, such as furniture, appliances, and linens, is usually much lower than the price paid when new. These items may have little or no market value because they are in a worn condition, out of style or no longer useful. For these reasons, formulas (such as using a percentage of the cost to buy a new replacement item) are not acceptable in determining value. If possible, you should support your valuation with photographs, canceled checks, receipts from your purchase of the items, or other evidence. Note that both Salvation Army and Goodwill have “donation value guides” on their web sites.

Note that a qualified appraisal isn’t required for publicly-traded securities for which market quotations are readily available. A partially completed appraisal summary and the maintenance of certain records are required for (1) nonpublicly-traded stock for which claimed deduction is greater than $5,000 and no more than $10,000, and (2) certain publicly-traded securities for which market quotations are not readily available.

Please keep the following rules in mind when it comes to both making donations of cash and non-cash charitable contributions as well as what information you need to maintain and submit to your tax preparer at tax time.