The end of the year is quickly approaching and many are ready to celebrate the upcoming holiday season by giving to their favorite charities, as well as think about tax planning strategies. Noncash donations are a great way to give large amounts without giving up your cash and still benefit from a tax deduction. Below is a list of the most common noncash charitable contributions and rules that apply to each.
- If the noncash item(s) donated are worth less than $5,000, you will need a receipt or donor acknowledgment letter from the charity for the IRS to allow a deduction on your donation. Some charities will value the donated item, but more often, charities will give you a blank receipt with the date. You can estimate the fair market value of the items donated by using this chart.
- If the item donated is more than $5,000, there is additional documentation required in order to take the charitable deduction. You must obtain a written appraisal from a qualified appraiser. A separate appraisal is required for each type of property contributed.
• New items
- The holiday season is when we often purchase food items, toys and clothing and donate goods to various charities. The value is determined by the purchase price – keep the purchase receipt with the receipt/letter you receive from the charity in your files.
• Qualified Vehicle Donations
- If you donate a vehicle, boat, or airplane (not property that is held for resale to customers) valued more than $500, you will need to attach a written acknowledgement from the donee organization that has the following information:
- Date of sale if organization sold it to an unrelated party or
- Date of contribution, if donee will give it to a needy individual, perform material improvement before selling, or use for its own charitable purposes.
- You can deduct the smaller of the vehicle’s FMV on the date of the contribution (you can use https://www.kbb.com/ to find the FMV), or the gross proceeds received from sale of the vehicle
• Appreciated Stock
- Donating appreciated stock is usually more tax advantageous than donating cash. This is a great tax strategy as well as good deed. You will be able to take a charitable deduction on the fair market value of the stock on the day you give it away. You will also eliminate any future gains on the stock if you continue to hold it. If you like the appreciated stock, you can purchase it at the current market price, thereby adjusting your cost basis to a much higher value.
- The only time this would not be advantageous is if:
- You do not itemize deductions
- You own the security less than a year
- You are in a low tax bracket with little to no capital gains tax
- Have you not decided which charitable organization you would like to donate? You can open a donor-advised fund through most brokerage firms, like Fidelity, Charles Schwab, etc. They are easy to open, have low administrative fees, and have a low initial minimum dollar requirement. Transfer the appreciated stock you would like to donate into the donor-advised fund, then you can deduct the fair market value on the date of transfer. Your gift will appreciate while invested in the fund, with no additional tax implications to you. You then have unlimited time to decide which charity you would like to donate to – just make sure you do not take the deduction a second time!
- There are a few limitations on contributions to donor-advised funds, so check with your donor-advised fund administrator before distributing funds.
• Qualified Conservation Property
- This is a great way of taxpayers to get a charitable tax deduction while aiding in the conservation and/or preservation of land or structures for public use, or the protection of the environment.
- If valued under $5,000, the best evidence in determining the fair market value is the sales price of a similar property/easement. If there are no comparable sales available, you must attach a statement that states the conservation purpose, the fair market value of the gift before and after the gift was used, if you made the donation in order to get a permit, or other approval, and if you are a related person that has interest in nearby property. If valued over $5,000, you will need a qualified appraisal.
Limitations on charitable deductions:
- The amount you can deduct for charitable contributions (both cash and non-cash) are generally limited to 50% of your adjusted gross income.
- Most capital gain property is limited to 30% of your adjusted gross income.
- You can carry over contributions that you cannot deduct in the current year for the following five years. Qualified conservation contributions can be carried forward for 15 years. You can deduct carryover contributions after deducting all allowable current year contributions first.
Remember, all noncash donations must be made to a qualified organization (an organization that has been granted tax-exempt status by the IRS). You cannot deduct the value of your time or services, or personal expenses incurred while performing theses services. You can also not deduct the appraisal fees as a charitable contribution, but you can deduct them as a miscellaneous itemized deduction.
If you have any questions on the deductibility of noncash contributions, do not hesitate to contact your tax advisor at Mason + Rich, PA.