Money Management
FOR
IMMEDIATE RELEASE: October 15, 2007
Donating Property Can Provide Tax Relief
Cash isn’t the only way you can help your favorite charity.
Many organizations accept gifts of used clothing, household
items, and cars, as well as stocks, mutual funds,
collectibles, and works of art. In addition to helping out
the charity, making a gift of property often means you can
qualify for a tax deduction, reports the North Carolina
Association of CPAs.
Generally, when you contribute property (anything
other than money or publicly
traded securities) to a qualified charitable
organization, you may deduct the item’s fair market value.
But there are new rules for some types of donated property,
so it’s important that you understand the details.
Clothing and household ITEMS must be in good condition
When you donate clothing and household items, such as
appliances, furniture, linens, and similar items, you
generally may deduct the fair market value of the goods. But
under a provision of the Pension Protection Act, passed in
2006,
contributions of these items after August 17, 2006 must be
in good used condition or better to qualify for a deduction.
That means there’s no deduction for that microwave oven that
no longer works or the shirt with holes in the sleeves.
To substantiate your deduction in the event you are audited,
you might want to take photographs or film the items. You
might also ask the organization for a receipt that attests
to the fact that the items you donated were in good used
condition.
One exception to this rule: you can take a
deduction for a contribution of a single item of clothing or
household item that is valued at $500 or more and include a
qualified appraisal of it with your return.
GIFTS OF
APPRECIATED SECURITIES
Donating appreciated stocks is a great way to help your
favorite charity and get a deduction in return. When you
donate stocks or mutual fund shares you have held for more
than one year, generally you may deduct the stocks’ current
fair market value. Additionally,
you avoid paying capital gains taxes on the
appreciated value.
Special rules apply to property valued at more than $500
If you donate non-cash property that is valued at more than
$500, you need to report to the
IRS how and when you acquired the property and your cost
basis. You must file Form 8283, Noncash
Charitable Contributions, for all donations of property valued at more than $500.
It’s a good idea to ask the recipient to provide you with
documentation specifying how the property will be used. If
the property you donate is used by the organization to carry
out its work or is given to a needy individual, you may
deduct its full market value. An example would be a car that
you donate which is used to deliver meals to shut-ins. On
the other hand, if the car is sold by the charity, your
deduction is limited to the vehicle’s sale price.
NEW
RECAPTURE RULE APPLIES TO GIFTS OF $5000+
Donations of tangible property valued at more than $5,000
generally require a written appraisal from a qualified
appraiser who must also sign Form 8283, Section B, Part III.
The organization accepting the donation is required to
provide written confirmation of any value that the donor
received in exchange.
There is also a new reporting rule in effect for donations
of art (or other appreciated tangible personal property)
made after September 1, 2006. A deduction claimed for fair
market value may be recaptured if a charity sells the
property within three years.
CONSULT WITH A CPA
The rules governing charitable donations are more
complicated then ever. A CPA can help you structure your
donation to provide the best tax benefit and can also
provide guidance on substantiating your deductions.
Produced
in cooperation with the AICPA.
©2007 The American Institute of Certified Public Accountants
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