How to Value Goodwill Donations for a Tax Deduction

Donating used goods to a qualified organization is a common way to support a cause and potentially lower your tax bill. These non-cash charitable contributions, such as clothing, furniture, and housewares given to charities like Goodwill, can be deducted from your taxes. To claim this benefit, you must choose to itemize your deductions on your tax return instead of taking the standard deduction. The value of your deduction is based on the property you donate.

The process of claiming this deduction is regulated by the Internal Revenue Service (IRS) to ensure that the values claimed are reasonable and properly substantiated. This involves correctly valuing your donated items, keeping meticulous records, and reporting the contribution on the appropriate tax forms.

Determining Fair Market Value

The foundation of your non-cash charitable deduction is the “Fair Market Value” (FMV) of the items you donate. The IRS defines FMV as the price that a willing buyer would pay and a willing seller would accept for an item, where both parties have reasonable knowledge of the relevant facts and neither is under any compulsion to buy or sell. This is not the price you originally paid for the item, but rather what it is worth in its current condition at the time of donation. Your deduction is based on what the item could reasonably sell for in a thrift store today.

A fundamental rule is that donated property must be in “good used condition or better” to be eligible for a deduction. The IRS has the authority to deny deductions for items that do not meet this standard. If you wish to claim a deduction of more than $500 for an item that is not in at least good condition, you must obtain a qualified appraisal of the item and attach it to your tax return.

To determine a reasonable FMV, you can use several practical methods. One direct approach is to visit local thrift stores and observe the selling prices for items similar to what you are donating. Many charitable organizations also publish valuation guides that provide estimated price ranges for common items, which can serve as a helpful reference. Another effective strategy is to research sold listings on online marketplaces for identical or very similar items. For example, a hardcover book might be valued at $1 to $3, while a working coffee maker could be valued between $10 and $25, depending on its brand and condition.

Required Documentation and Records

Proper record-keeping is a requirement for deducting non-cash contributions, and the specific documents you need depend on the total value of your donation. For any single non-cash contribution under $250, you must at a minimum obtain a receipt from the charitable organization. This receipt should include the name of the charity, the date of the contribution, and a reasonably detailed description of the items donated.

When the value of your donation is $250 or more, the documentation requirements become more stringent. You must obtain a “contemporaneous written acknowledgment” from the charity for the contribution. This document must contain specific information: the charity’s name, the date and location of the donation, and a description of the donated property. The acknowledgment must also include a statement from the organization confirming whether you received any goods or services in exchange for your contribution and, if so, a good-faith estimate of their value.

If the total value of all your non-cash donations for the year exceeds $500, you must file IRS Form 8283, Noncash Charitable Contributions, with your tax return. For donations valued at more than $5,000, the requirements escalate further, and you must obtain a formal written appraisal from a qualified appraiser.

Claiming the Deduction on Your Tax Return

Once you have determined the fair market value of your donated items and collected all the necessary documentation, the final step is to report the deduction on your federal income tax return. The primary document for this process is Form 8283, which you are required to file if your total deduction for all non-cash gifts is more than $500. You will use the records you have gathered to complete the relevant sections of this form.

For most donations of used household goods, you will complete Section A of Form 8283. Here, you will list the receiving organization’s information and provide details for each item or group of similar items, including the date of contribution, how you acquired the property, your original cost basis, and the fair market value you determined. After filling out the necessary lines, you will calculate the total value of your contributions on the form.

The total amount of your non-cash contributions from Form 8283 is then transferred to Schedule A (Form 1040), Itemized Deductions. This amount is combined with your other itemized deductions, such as medical expenses, state and local taxes, and mortgage interest. The completed Form 8283 must be attached to and filed with your Form 1040 tax return. This ensures that the IRS has the necessary details to substantiate the deduction you are claiming.