Claiming a charitable deduction for a cash contribution is straightforward.
The taxpayer claims the amount paid, whether by cash, check, credit card or some
other method. Taxpayers need only a bank record or a written acknowledgment from
the charity. For contributions of property, the rules can be more complex.
Contributions of property
A taxpayer that contributes property can deduct the property's fair market
value at the time of the contribution. For example, contributions of clothing
and household items are not deductible unless the items are in good used
condition or better. An exception to this rule allows a deduction for items that
are not in at least good used condition, if the taxpayer claims a deduction of
more than $500 and includes an appraisal with the taxpayer's income tax
return.
Household items include furniture and furnishings, electronics, appliances,
linens, and similar items. Household items do not include food, antiques and
art, jewelry, and collections (such as coins).
To value used clothing, the IRS suggests using the price that buyers of used
items pay in second-hand shops. However, there is no fixed formula or method for
determining the value of clothing. Similarly, the value of used household items
is usually much lower than the price paid for a new item, the IRS instructs.
Formulas (such as a percentage of cost) are not accepted by the IRS.
Vehicles
The rules are different for "qualified vehicles," which are cars, boats and
airplanes. If the taxpayer claims a deduction of more than $500, the taxpayer is
allowed to deduct the smaller of the vehicle's fair market value on the date of
the contribution, or the proceeds from the sale of the vehicle by the
organization.
There are two exceptions to this rule. If the organization uses or improves
the vehicle before transferring it, the taxpayer can deduct the vehicle's fair
market value when the contribution was made. If the organization gives the
vehicle away, or sells it far well below fair market value, to a needy
individual to further the organization's purpose, the taxpayer can claim a fair
market value deduction. This latter exception does not apply to a vehicle sold
at auction.
To determine the value of a car, the IRS instructs that "blue book" prices
may be used as "clues" for comparison with current sales and offerings.
Taxpayers should use the price listed in a used car guide for a private party
sale, not the dealer retail value. To use the listed price, the taxpayer's
vehicle must be the same make, model and year and be in the same condition.
Most items of property that a person owns and uses for personal purposes or
investment are capital assets. If the value of a capital asset is greater than
the basis of the item, the taxpayer generally can deduct the fair market value
of the item. The taxpayer must have held the property for longer than one
year.
Please contact our office for more information about the tax treatment of
charitable contributions