Noncash Donations: How to Claim a Tax Deduction

Donating goods or property to a qualified charitable organization can result in a tax benefit. These noncash contributions, which can range from clothing and household goods to stocks and vehicles, may be deductible on your federal income tax return if you itemize. Correctly claiming this deduction requires understanding the rules for valuation, documentation, and income limitations.

Determining Donation Value

The foundation of your noncash charitable deduction is the item’s Fair Market Value (FMV). The IRS defines FMV as the price that property would sell for on the open market, assuming a willing buyer and seller with reasonable knowledge of the facts. This is not the price you originally paid, but what it is worth at the time of donation. The responsibility for determining this value falls entirely on the donor.

For common household items like used clothing, furniture, and electronics, determining FMV requires a practical approach. A useful method is to research the prices of similar items at local thrift stores or online consignment shops. These prices can serve as a guide for what your donated goods are worth. Donated clothing and household items must be in at least “good used condition” to be deductible.

Items like art, antiques, and collectibles often require a more formal valuation process than checking thrift store prices. While a formal requirement for a written appraisal is tied to specific dollar thresholds, seeking an expert opinion can be a prudent step for any significant item.

Substantiation and Recordkeeping Requirements

To claim a deduction for a noncash donation, you must maintain proper records, with requirements escalating with the value of the gift. For any single noncash contribution under $250, you must obtain and keep a receipt from the charity. If a receipt is not available, you must have other reliable written records showing the charity’s name, the date and location of the contribution, and a description of the property.

When a single donation is valued at $250 or more, you must obtain a contemporaneous written acknowledgment from the charity before you file your tax return. This document must state the name of the organization, a description of the donated property, and one of three statements:

• That no goods or services were provided in return for the contribution.
• A description and good-faith estimate of the value of any goods or services provided.
• That any goods or services provided consisted entirely of intangible religious benefits.

If your total deduction for all noncash gifts is more than $500, you must file Form 8283, Noncash Charitable Contributions, with your tax return. For donations valued over $500 but not more than $5,000, you are required to complete Section A of this form. This section requires details about the donated property, how you acquired it, your cost or adjusted basis, and its determined FMV.

For a single item or group of similar items valued at more than $5,000, you must obtain a written qualified appraisal of the property from a qualified appraiser. You must also complete Section B of Form 8283, which requires signatures from the qualified appraiser and an official from the recipient charity.

Special Rules for Certain Property

The general valuation rules have exceptions for certain property, most notably vehicles, boats, and airplanes. When you donate such an item, your deduction is limited to the gross proceeds the charity receives when it sells the item. The charity is required to report this amount to you and the IRS on Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes.

Exceptions exist where you may be able to claim the full FMV for a donated vehicle. If the charity makes a significant intervening use of the vehicle, such as using a donated van to deliver meals, you can deduct its FMV. Another exception applies if the charity makes a material improvement to the vehicle before selling it. The charity will indicate this on Form 1098-C.

Different rules also apply to donations of appreciated property, which is property that has increased in value since you acquired it. For “ordinary income property,” such as business inventory or a capital asset held for one year or less, your deduction is limited to your cost basis in the property, not its higher FMV.

In contrast, for donations of “capital gain property,” which are assets that would have produced a long-term capital gain if sold, you can deduct the full FMV. This makes donating appreciated assets like stocks held for more than a year advantageous. By donating the security directly, you receive a deduction for its current market value and also avoid paying capital gains tax.

Deduction Limits and Carryovers

The final amount you can deduct in a single year is subject to limits based on your Adjusted Gross Income (AGI). These limits prevent a taxpayer from eliminating their entire tax liability through charitable giving. The specific percentage applied depends on the type of property donated and the type of recipient organization.

For most noncash donations made to public charities, such as churches, hospitals, and schools, the total deduction you can claim is limited to 50% of your AGI. This 50% limit encompasses both cash and noncash gifts. Within this overall ceiling, there are more restrictive limits for certain types of property.

A limitation applies to donations of capital gain property. When you contribute appreciated assets like stocks or real estate to most public charities, your deduction for that property is limited to 30% of your AGI for the year. This means you can only deduct an amount up to this 30% threshold in the current tax year.

If your total charitable contributions for the year exceed these AGI limits, the excess amount is not lost. The IRS allows you to carry over the unused deduction for up to five subsequent tax years. This provision ensures you can apply the excess contributions in future years until they are fully deducted, subject to the same AGI limits.