With the COVID-19 stay-at-home orders, everyone is cleaning out closets … possibly even the attic, basement, and garage. These activities carry more than just a sense of accomplishment and peace in a less cluttered space. They may increase your non-cash charitable donations! However, if your goal is a tax deduction for the donated goods’ value, you must follow several rules.

Type of Charity

To be tax deductible, your donation must be given to a qualified 501(c)(3) organization. Giving items you no longer need to friends, family and others, while likely appreciated, does not qualify them as tax deductible.

Itemizing

After the Tax Cuts and Jobs Act of 2017, many people stopped itemizing and instead claimed the increased standard deduction. The recently passed CARES Act, however, allows for a $300 above-the-line deduction for charitable donations.

To deduct any amount over that, cash or non-cash, you must itemize deductions on Schedule A. Additionally, while some states offer tax incentives for charitable contributions, the benefit, if it exists, is often minimal.

Value

The deductible amount is limited to the donated goods’ fair market value (FMV) at the time of donation. Moreover, the property’s condition should at least be good. FMV is the price a willing buyer, having reasonable knowledge of all relevant facts, would pay.

In other words, it is the price someone would pay in a used clothing store or consignment shop, which is usually far less than the original purchase price. Furthermore, if the charity provided any goods or services in return, the donation value must be reduced accordingly.

Documentation

Donations must be documented with proper receipts. For amounts under $250, a deduction is allowed only if the qualified charity provides a receipt, letter, or other written communication that shows:

• The qualified charity’s name and address,
• date of donation, and
• description of the item.
• For securities, include the name of the issuer, the type of security and whether it is publicly traded.

If it is impractical to obtain a receipt (i.e., property donated at an unattended drop site), you must keep a reliable written record detailing the same information outlined above. For contributions greater than $250 but less than $500, documentation from the qualified charity is required.

If your contribution is greater than $500 but less than $5,000, you must also complete and file Form 8283 with your tax return. In addition to the detail listed above, the following information regarding the property’s description is also required:

• Fair market value on the contribution date, how it was determined,the property’s condition, and
• how and when the property was obtained and its value at that time.

If the donation is tangible personal property, you must report whether the item relates to the charity’s purpose or function. To file the return, you must receive the acknowledgment by the filing date or the due date (including extensions), whichever is earlier.

A deduction greater than $5,000 also requires a written appraisal from a qualified appraiser attached to Form 8283. A few areas are exempted from the appraisal requirement (i.e., qualified vehicles, publicly traded securities, and certain inventory and intellectual property).

Groups of similar items valued at more than $5,000, even if donated to different charities, are subject to the appraisal requirements.

Special Rules

If vehicles, planes, or boats are donated to charity, they are subject to additional rules. The primary requirement: should the charity sell the item, the deduction is limited to the proceeds received from the sale.

Reporting Requirements

Non-cash charitable contributions are reported on Schedule A, line 12. For donations greater than $500, you must also complete Form 8283. If a vehicle was donated, Form 1098-A is also required.

Limitations

The maximum deductible amount is contingent on the type of property donated and the type of charity. Donations to public charities (i.e., churches, educational institutions, hospitals) are limited to 60 percent of adjusted gross income (AGI). Donations to private organizations (i.e., veterans groups, private foundations, etc.) are limited to 30 percent of AGI.

In addition, the deduction for gifts of capital gain property (i.e., securities) to public charities is limited to 30 percent of AGI. Gifts of capital gain property to private charities are limited to 20 percent of AGI.

Conclusion

Hopefully, clean closets and an organized basement have provided you a sense of calm during these extraordinary times. To make the most of the diligence this process entails, take the time to ensure the donation is in fact deductible, and if so, what steps should be taken, both now and next filing season.