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Donating Property

By Robert F. Bornstein, PhD and Mary A. Languirand, PhD

Tax season is here again, and for those of us who choose to report donated property on federal tax returns, some words of adviceā€¦.

The IRS is on the lookout for specious figures, so you'll want to be conservative when determining the value of donated property. Many people overestimate how much their stuff is worth for sentimental reasonsā€¦.but just because you're attached to your old cashmere sweater doesn't mean it's a hot item. Some people deliberately inflate these values, assuming no one scrutinizes them; keep in mind that unrealistic valuations of donated property can trigger an IRS audit (not worth the extra 50 bucks you made by estimating that your battered 1970s-era TV stand is worth $250).

The IRS website (www.irs.gov) provides guidelines for determining the fair market value of donated property. In addition, a few tips:

  • In general, you cannot take a deduction for clothing or household items you donate unless the clothing or items are in "good used condition". If you donate clothing or a household item that is not in good used condition you must include a qualified appraisal of it with your return.
  • The fair market value of used clothing and other personal items is usually far less than the price you paid for them. Unfortunately there are no fixed formulas for finding the value of used items of clothing; you should try to value each item at the price buyers of similar items typically pay in used clothing stores, such as consignment or thrift shops.
  • If you contribute property with a fair market value that is more than your original cost basis (for example, a work of art that is now worth more than you paid for it), things get complicated quickly. Consult a tax planner on this.
  • When you donate one or more large-ticket items (cars, boats, or airplanes), be especially careful to obtain a valid estimate by a qualified professional-the IRS is likely to scrutinize such donations carefully.
  • For any noncash donation exceeding $5,000 in value you must file additional paperwork (currently IRS Form 8282).
  • You can't get a tax deduction for donating food (for example, to a local food bank or homeless shelter). As far as the IRS is concerned, food isn't property.
 

Robert Bornstein and Mary Languirand are the authors of When Someone You Love Needs Nursing Home, Assisted Living, or In Home Care, which is available at amazon.com, or may be purchased directly from HarperCollins Publishers.

Our latest book is entitled How to Age in Place: Planning for a Happy, Independent, and Financially Secure Retirement, published by Ten Speed Press, a division of Random House.