Tax Rules for Noncash Charitable Donations

donation box

Each year, some taxpayers donate noncash items (e.g., clothing, household goods, furniture and even automobiles) to qualifying charitable organizations. The fair market value of these items can be used as a potential tax deduction on an individual’s personal tax return.

However, in order for the potential noncash deduction to be included as part of a complete tax return, there are stringent substantiation requirements that must be met. Tax return preparers are unable to properly complete Form 8283, Noncash Charitable Contributions without proper information.

Taxpayers must furnish the following information about the donated property:

  • the date the property was donated
  • the date the taxpayer first acquired the property
  • the original cost of the property
  • the fair market value of the property
  • how the FMV was computed/determined.

Taxpayers must also receive and keep a written receipt from the charitable organization showing the name of the organization, date and location of the donation, and a reasonably detailed description of the property donated.

Plus, for donated items valued at $250-$499, the acknowledgment from the organization must be in writing. It must include a description of the donated property, state whether the organization gave any goods or services as a result of the contribution, and include a description and good-faith estimate of the value of any goods or services given. The written acknowledgment must be received by the taxpayer no later than the date the tax return is timely filed.

For items valued at $500-$4,999, the substantiation requirements listed above are to be followed. In addition, the taxpayer’s records should include how the property was acquired (purchase, gift, inheritance, etc.).

Items valued at $5,000 or more are required to have a written appraisal from a firm or individual that is qualified to issue such appraisals.

If the above substantiation requirements are not met, your tax preparer may not be able to include the potential noncash deductions on your tax return. The IRS imposes severe penalties on tax preparers for failing to comply with due-diligence requirements of IRS Circular 230, Regulations Governing Practice Before the Internal Revenue Service.

Want to learn more? Contact the tax experts at Mark J. Cisco & Co. at 419.629.3494. We’re here to help you wade through the IRS requirements for noncash donations as well as other potential deductions.

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