Donating Property to Charity: How to Claim a Tax Deduction

Donating property to charity can support important causes while offering tax benefits. The IRS permits deductions for donated property, but strict guidelines must be followed to qualify. Failing to meet documentation and valuation requirements can result in denied claims or penalties.

Understanding which organizations qualify, what types of property are eligible, and how to assess and document donations ensures compliance and maximizes deductions.

IRS-Qualified Organizations

Not all charities qualify for tax-deductible donations. The IRS allows deductions only for contributions to tax-exempt organizations under Section 501(c)(3) of the Internal Revenue Code, including public charities, private foundations, and certain religious, educational, and scientific institutions. Donations to social welfare groups under 501(c)(4) or political organizations are not deductible.

The IRS provides the Tax Exempt Organization Search (TEOS) tool, which allows donors to verify a charity’s tax-exempt status. If an organization loses its exemption due to failure to file required annual returns, donations made after the loss are not deductible.

Some religious institutions, such as churches, synagogues, and mosques, automatically qualify for tax-exempt status without needing 501(c)(3) recognition. However, donations earmarked for individuals or non-charitable activities are not deductible.

Eligible Property Types

The IRS allows deductions for various types of donated property, but different rules apply depending on the asset. The type of property affects valuation, documentation requirements, and necessary tax forms.

Real Estate

Donating real estate can provide tax benefits, but the process involves several steps. The IRS permits deductions for residential, commercial, and undeveloped land if full ownership is transferred to a qualified charity. If the property has appreciated, the donor can generally deduct its fair market value while avoiding capital gains tax. If the property has depreciated, the deduction is limited to the lower of fair market value or the donor’s adjusted basis.

If the property carries a mortgage, special rules apply. The IRS may treat the transfer as a bargain sale, requiring the donor to recognize taxable income on the portion of the mortgage assumed by the charity. Retaining any rights to the property, such as a life estate, reduces the deduction. For real estate valued over $5,000, a qualified appraisal is required, and Form 8283 must be filed.

Vehicles

Donating a car, boat, or airplane can provide a deduction, but the amount depends on how the charity uses the vehicle. If the organization sells the vehicle without significant improvements, the deduction is limited to the gross proceeds from the sale, which the charity reports on Form 1098-C. For example, if a donated car has a fair market value of $5,000 but sells for $3,000, the deduction is limited to $3,000.

If the charity uses the vehicle for its operations, such as delivering meals or transporting individuals in need, the donor may deduct the fair market value. In this case, the charity must provide written acknowledgment stating the intended use and duration of ownership. Vehicles valued over $500 require Form 8283, and those exceeding $5,000 also need a qualified appraisal unless the deduction is based on the sale price.

Other Tangible Assets

Donors can contribute physical assets such as artwork, jewelry, furniture, and collectibles. Deduction rules depend on whether the charity will use the item in a way related to its mission. If a museum adds a donated painting to its collection, the donor can deduct the fair market value. However, if the museum sells the painting, the deduction is limited to the donor’s cost basis.

For items valued over $5,000, a qualified appraisal is required, and Form 8283 must be submitted. If the charity sells the donated asset within three years, it must report the sale to the IRS, and the donor may need to adjust the deduction. Special rules apply to certain collectibles, such as rare coins and stamps, which may be subject to capital gains tax rates if sold rather than donated.

Determining Fair Market Value

Fair market value (FMV) reflects what a willing buyer and seller, both with reasonable knowledge of the asset, would agree upon. Factors such as market demand, condition, and recent comparable sales influence FMV.

For assets with an active resale market, determining FMV can be straightforward. Publicly traded securities are valued based on their average trading price on the donation date. Household goods and electronics can be valued using resale platforms like eBay or thrift store price guides, provided the condition is accurately considered.

More complex assets, such as intellectual property or business interests, require deeper analysis. A patent donation must account for potential future revenue streams, licensing agreements, and market competition. The IRS may scrutinize these donations closely, particularly if the claimed FMV significantly exceeds historical earnings. If a donor transfers a partial interest in a business, discounts for lack of control or marketability may apply, reducing the deductible amount.

Appraisal Requirements

For donated property valued above $5,000, the IRS requires a qualified appraisal. The appraiser must have verifiable credentials and experience in valuing the specific asset type. Appraisals must comply with IRS regulations and follow the Uniform Standards of Professional Appraisal Practice (USPAP).

The appraisal must be completed no earlier than 60 days before the donation date and no later than the due date of the tax return that claims the deduction. If the valuation is outdated or does not reflect market conditions, the IRS may reject it, potentially disallowing the deduction. This is particularly relevant for assets with volatile pricing, such as fine art or rare collectibles.

Documentation of the Donation

Proper documentation is necessary to substantiate a charitable contribution. The level of required documentation depends on the value and type of property donated.

For donations over $250, the donor must obtain a written acknowledgment from the charity, including the organization’s name, a description of the property, and a statement confirming whether any goods or services were received in exchange. If the charity provided something in return, such as event tickets or merchandise, the deduction must be reduced by the value of those benefits. Contributions exceeding $500 require additional details, including how and when the donor acquired the property and its original cost basis, which must be reported on Form 8283. If the donation exceeds $5,000, a qualified appraisal must be attached to the tax return, along with the charity’s signature on Section B of Form 8283, verifying receipt of the property.

Deduction Limits and Carryforward

The IRS limits how much of a charitable donation can be deducted in a given tax year based on the donor’s adjusted gross income (AGI). These limits vary depending on the type of property and the receiving charity. Contributions of appreciated property, such as real estate or stocks, are generally limited to 30% of AGI when given to public charities, while donations of ordinary income property, such as inventory or artwork created by the donor, are capped at 50% or 60% in certain cases. Excess amounts can be carried forward for up to five years.

State-Level Variations

While federal tax law governs charitable deductions, state tax codes may impose additional rules. Some states, such as California and New York, generally follow federal guidelines, while others impose stricter limits or require separate documentation.

Certain states offer additional incentives, such as tax credits that directly reduce state tax liability. Arizona, for example, provides a dollar-for-dollar credit for donations to qualifying charities, subject to annual limits. States without an income tax, such as Texas and Florida, do not offer state-level deductions, meaning the tax benefit is limited to federal savings. Understanding state-level differences can help donors maximize their overall tax benefits.