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If you donate property to a charity, the value of the donation is sometimes difficult to determine. Generally, the value of the gift is the fair market value of the property at the time of the donation, but there are some exceptions to this rule.
Clothing and household items. If you're donating used clothing, furniture, household goods, toys, books, etc., the value of the gift is the same as you would pay in a thrift or consignment shop. You should keep an itemized list of the goods you donate and, if possible, get the charity's representative to stamp or sign it; at a minimum, they should give you a receipt for the goods you donate showing the name of the charity and date.
Vehicles. If you are donating a vehicle, which includes a car (or other motor vehicle), a boat or an airplane to a charitable organization, the rules for determining the value and claiming the deduction are complex. The charitable organization must provide you with a Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, or a similar statement, for donations over $500.
If the fair market value of the donated vehicle is less than $500, you can claim the fair market value as a deduction. The charitable organization must provide you with a written statement acknowledging your donation if the fair market value was at least $250 or you will not be able to claim any deduction.
However, a donation of more than $500 is limited to the smaller of either:
To learn more about the pitfalls in this area, please review IRS Publication 4302, A Charity's Guide to Car Donations, and IRS Publication 4303, A Donor's Guide to Car Donations.
Inventory. If you donate items from your inventory (for example, you're a restaurant owner and you donate the food for a charitable event) you can deduct the cost of the items to you, not their value.
Property that has increased in value. If you donate property that has increased in value, the amount that you can deduct depends on whether, if you had sold the property, you would have realized ordinary gains or capital gains. For ordinary gains property (most property you held for a year or less, works of art you created, or inventory) you can deduct only the lower of fair market value at the time of the gift, or your basis in the property (which is generally your cost).
However, if the property would have resulted in capital gains if you had sold it, you can use the fair market value at the time of the gift. This includes stocks and bonds held for more than one year, real estate, and depreciable business property held for more than one year.
Property that has declined in value. If you donate property that has declined in value since you acquired it, your charitable contribution deduction is limited to the property's fair market value at the time of the contribution. Unfortunately, you can not claim a deduction for the difference between your basis in the property and the fair market value.
Documenting noncash gifts. For noncash contributions under $250, you need to get a receipt from the charity showing its name, the date, and a reasonably detailed description of the property. You also need to keep records showing the property's fair market value, and its cost if it has appreciated in value.
For noncash contributions of $250 to $500, you must get a written acknowledgement of your contribution from the charity, stating how much (if anything) you received in return for your gift.
If you made total noncash gifts over $500 for the year, you must complete and attach to your tax return IRS Form 8283, Noncash Charitable Contributions.
If any single gift or group of similar gifts was valued at over $5,000, you must also get an appraisal of the item from a qualified appraiser. The cost of the appraisal itself is not a charitable contribution, but can be deducted as a miscellaneous deduction on Line 23 of Schedule A.
Limits on Charitable Contribution Deduction Amount
Even if you have donated property to a qualified charitable organization and have the required records, the amount you can deduct on your 2011 tax return may be limited based upon your adjustable gross income. However, if you can not deduct the entire amount in the year of contribution because of the AGI limitation, you can carryover the disallowed amount for five years, or until it is used up.
Donations less than 20 percent of AGI. If your total contributions are 20 percent or less of your adjusted gross income, the limitations on the deduction amount do not apply to you: You can deduct the full amount of your contributions.
Fifty percent limit. Your charitable contribution deduction can never exceed more than fifty-percent of your adjusted gross income for the tax year. This is the total amount of all of your contributions to all charitable organizations, whether cash or non-cash. However, depending upon the organization and the type of the property, your deduction may be limited to 20 percent or 30 percent of your adjusted gross income.
In general, your direct contributions to churches, educational organization, hospitals, and publicly supported charities are only limited by the 50-percent AGI limitation, unless they are contributions of capital gains property. Unless you elect to deduct the fair market value of the property by the amount that would have been long-term-capital gain if you'd sold the property, the deduction for gifts of capital gain property are limited to 30 percent of your AGI for the tax year.
Thirty Percent Limit. A 30 percent of AGI limitation applies to contributions made to veterans' organizations, fraternal societies, non-profit cemeteries, and certain private non-operating foundations, as well as gifts in trust "for the use of" any organization. Also, the 30 percent of AGI limitation applies to deductions claimed for amounts spent on behalf of a student who is living with you. However, a 20 percent AGI limitation applies to gifts of capital gain property to veterans' organizations, fraternal societies, non-profit cemeteries, and certain private non-operating foundations.
For more information, and worksheets to aid in calculating any limitations, see Publication 526, Charitable Contributions.