When it comes to donating non-cash items, you must be very thorough if your goal is to deduct the full value of each item.
In a recent Tax Court case a taxpayer claimed a deduction of almost $28,000 for three separate noncash donations to a charitable organization.
Because of the size of the donations, the taxpayer was subject to several documentation requirements including:
1. A need to obtain a written acknowledgement from the charity, describing what was donated, when it was donated, a statement saying that no goods or services were given in return for the items. This acknowledgement is required any time cash or noncash donations are valued at $250 or more, and it must be obtained by the time the tax return for the year of the donated is filed, or due.
2. A requirement to maintain documentation for noncash donations that exceed $500. This documentation should indicate the appropriate date each non cash item was acquired, include a reasonably detailed description of the donated property along with its condition, the estimated purchase price of the item, and describe its current retail value, with an explanation on how this value was determined.
3. And lastly, a requirement to have the noncash items appraised (by a qualified appraiser) if the items collectively exceed $5,000 for the same or similar items included in the donations. This does not apply to publicly traded securities as their fair market value is readily available.
Although the taxpayer in Tax Court had written acknowledgments, they did not qualify because they lacked a description of the donated items. In addition the taxpayer failed to take pictures of the donated items to support quality and condition. Finally the taxpayer also failed to have the items properly appraised before they were donated. This is why documentation is critical.
Need to determine the value of your non-cash donation? Use our handy value calculator worksheet by clicking here.
Need help analyzing what tax breaks you may be eligible for? Davis and Hodgdon Associates CPAs has been assiting nonprofits, individuals and businesses with tax and accounting services in the Burlington Vermont Metro area for more than 20 years. If you have any questions or concerns please feel free to call 802.878.1963 or email [email protected].