What Is a Gift in Kind Donation & How Is It Valued?

A gift in kind donation, also known as a non-cash contribution, involves giving property other than money to a qualified charitable organization. These contributions can take various forms, such as tangible personal property, real estate, or securities. Donating items in kind can offer tax advantages to the donor, but it requires careful attention to valuation and documentation. This article clarifies what these donations entail, how their value is determined for tax purposes, and the necessary records to support a deduction.

Understanding Gifts in Kind

Gifts in kind are distinct from monetary donations because they involve the transfer of assets or goods rather than cash. These non-cash contributions serve as a valuable resource for charitable organizations, allowing them to fulfill their missions without expending their own funds for needed items or services. Common examples include tangible personal property (e.g., clothing, furniture, art, vehicles, business inventory), real estate (e.g., land, buildings), and intangible assets (e.g., stocks, bonds, intellectual property).

Not all non-cash items receive the same tax treatment; certain services generally do not qualify for a deduction. For instance, while a gift card purchased with cash and donated to a charity can be deductible, professional services (e.g., legal advice, graphic design) provided free of charge are not considered deductible gifts in kind. The IRS considers these a donation of time or skills, which are not deductible. However, unreimbursed out-of-pocket expenses directly related to volunteer work might be deductible.

For a donation to be tax-deductible, it must be made to a “qualified charitable organization,” typically one exempt from federal income tax under Internal Revenue Code Section 501(c)(3). Donors must ensure the organization holds this status, which can often be verified through the IRS’s online tools. A fundamental principle is that the donation must be made with charitable intent, meaning the donor receives nothing of significant value in return. If something of value is received, the deductible amount must be reduced by the fair market value of the benefit received.

Determining the Value of Gifts in Kind

The potential tax deduction for a gift in kind is directly linked to its fair market value (FMV) at the time of the donation. Fair market value (FMV) is the price a willing buyer and seller would agree upon, with neither compelled to act and both having reasonable knowledge of relevant facts. This valuation process requires careful consideration, as overstating the value can lead to penalties. The IRS provides guidance in Publication 561 on determining the value of donated property.

Valuation methods vary depending on the type of property donated. For common household items and clothing, the FMV is generally what buyers would pay for similar items in used clothing or thrift stores, considering the item’s condition. The IRS specifies that household items and clothing must be in “good used condition or better” to be deductible, with an exception for items valued over $500 that require a qualified appraisal. For vehicles, resources like Kelley Blue Book or NADA Guides can provide a basis for valuation, though the deductible amount can depend on how the charity uses the vehicle.

Publicly traded securities, such as stocks or bonds, are typically valued at the average of their high and low selling prices on the date of the donation. Real estate donations generally require a professional appraisal to establish their fair market value. For art, antiques, and other collectibles, a qualified appraisal is necessary for items exceeding certain value thresholds.

A qualified appraisal is generally required for most non-cash property valued over $5,000, and for donated vehicles if the charity sells it for more than $500. This appraisal must be performed by a qualified appraiser, and the appraisal date must be no earlier than 60 days before the donation date.

The “related use” rule also influences the deductible amount for tangible personal property; if the charity uses the donated property for a purpose substantially related to its tax-exempt function, the donor can generally deduct the full fair market value. However, if the charity sells the property, the deduction might be limited to the donor’s cost basis.

Documentation for Tax Deductions

Proper documentation is essential to substantiate any gift in kind deduction claimed on a tax return. All charitable contributions, regardless of amount, require basic record-keeping, such as bank records for cash contributions or written communication from the charity. For non-cash contributions, the specific documentation needed depends on the value of the donation. This documentation helps the IRS verify the accuracy of the claimed deduction and prevent overvaluation.

For non-cash contributions valued under $250, donors should keep a receipt from the charitable organization showing its name, the date of contribution, and a detailed description of the property. If the deduction claimed for a non-cash contribution is at least $250 but not more than $500, a written acknowledgment from the qualified organization is required. This acknowledgment must include a description of the property and a statement indicating whether the organization provided any goods or services in return. If goods or services were provided, their fair market value must be stated.

When the total deduction for all non-cash contributions exceeds $500, donors must complete and attach IRS Form 8283, Noncash Charitable Contributions, to their tax return. This form requires details about the donated items, including their description, date acquired, how they were acquired, and the fair market value. In these higher-value cases, the charity must also sign Form 8283, specifically Section B, acknowledging receipt of the property and confirming their authorized representative’s signature. The donor is ultimately responsible for accurately determining the fair market value and maintaining all necessary records to support the deduction.