What Are Gifts in Kind? Valuation and Tax Rules

While cash contributions are generally straightforward, the process of valuing and accounting for non-cash gifts involves specific considerations. Understanding the proper handling of gifts in kind is important for both donors seeking tax benefits and recipient organizations ensuring compliance and accurate financial reporting.

Defining Gifts in Kind

A gift in kind, also known as an in-kind donation, refers to a contribution of property or services rather than money. While property is widely accepted, it is important to note that the value of personal services, such as volunteered time or professional expertise, is generally not tax-deductible as a charitable contribution under U.S. federal tax law, even if valuable to the recipient organization.

Tangible personal property often includes items like artwork, furniture, vehicles, clothing, or food. Real estate, such as land or buildings, can also be donated as a gift in kind. Intangible assets like securities, including stocks, bonds, or mutual funds, and intellectual property, such as patents or copyrights, are also common forms of these contributions. The use of property, such as providing rent-free use of a building, also falls under this category.

These gifts differ from cash donations because they involve the transfer of assets or the provision of services directly, rather than providing funds to procure them. This distinction means that their valuation and tax treatment require a different approach compared to straightforward cash contributions. For recipient organizations, these contributions can significantly reduce operational costs and fulfill specific project needs without expending financial resources.

Valuation of Gifts in Kind

The general principle for determining the value of donated property is its “fair market value” (FMV) at the time the gift is made. Fair market value is defined as the price at which property would change hands between a willing buyer and a willing seller, neither being compelled to buy or sell, and both having reasonable knowledge of relevant facts.

For publicly traded securities, the closing price on the date of the gift is typically used. Real estate and significant artwork or collectibles generally require a professional appraisal by an independent, qualified expert to establish their FMV. For vehicles, reputable pricing guides or an appraisal can help determine the value. Other tangible personal property, such as used clothing or household items, might be valued based on sales of comparable items in similar condition or through expert opinion.

A qualified appraisal is often required for gifts exceeding certain monetary thresholds. For most property, an appraisal is necessary if the claimed deduction is more than $5,000. For clothing and household items, a deduction exceeding $500 requires documentation that the items are in good used condition or better, with an appraisal potentially needed if the claimed value exceeds $5,000. The donor is solely responsible for determining the value and obtaining any necessary documentation, including qualified appraisals; the recipient organization does not provide the valuation.

Tax Considerations for Donors

The deductible amount for a non-cash contribution is generally the property’s fair market value. However, this amount can be limited by the donor’s adjusted gross income (AGI) and the type of property donated.

The tax treatment differs based on whether the property is considered “ordinary income property” or “capital gain property.” Ordinary income property, such as inventory or property held for one year or less, is generally deductible only up to the donor’s cost basis. Conversely, appreciated capital gain property, like stocks held long-term or real estate, may allow a deduction for the full fair market value, subject to AGI limitations. Excess contributions that exceed AGI limits in a given year can typically be carried over and deducted for up to five subsequent tax years.

For gifts over $250, donors must obtain a contemporaneous written acknowledgment from the recipient organization. This acknowledgment must describe the gift but should not state its value, as valuation is the donor’s responsibility. For non-cash contributions exceeding $500, donors must file IRS Form 8283, “Noncash Charitable Contributions,” with their tax return. If the deduction for an item or group of similar items is more than $5,000, a qualified appraisal is generally required, and a summary of this appraisal is included on Form 8283.

Tax Considerations for Recipients

Non-profit organizations typically record gifts in kind as revenue at their fair market value on the date of receipt. This accounting practice ensures that the organization’s financial statements accurately reflect the full scope of contributions received, even if no cash changes hands.

Recipients have a responsibility to provide written acknowledgment to donors for contributions of $250 or more. This acknowledgment must include a description of the donated property and a statement confirming that no goods or services were provided in exchange for the gift, or if they were, their value.

While generally not a primary concern for most in-kind donations, non-profits should be aware of the potential for “unrelated business income tax” (UBIT). If a donated gift in kind is sold by the organization and the proceeds are used for a purpose unrelated to its tax-exempt mission, UBIT could apply. However, this is relatively uncommon for most gifts. For gifts to individuals, true gifts are typically not considered taxable income to the recipient under U.S. federal tax law. Any potential gift tax implications, such as for very large gifts exceeding the annual exclusion amount ($19,000 per recipient in 2025), are generally the donor’s responsibility, not the recipient’s.