Life Events

Donating property instead of cash can multiply the benefit of a gift, but the deduction depends on what you give, how long you owned it and how the charity will use it. The rules are technical, so it pays to plan before you donate.

Start with the type of property

• Appreciated investments held more than one year (stocks, mutual fund shares, real estate): you can generally deduct the fair market value and avoid tax on the gain, subject to income-based limits.
• Investments held one year or less: the deduction is usually limited to your cost basis.
• Investments that have lost value: it is usually better to sell them, claim the loss and donate the cash.
• Clothing and household goods: deductible at fair market value, which is usually much less than the original price, and the items must generally be in good used condition or better.
• Vehicles, boats and aircraft: special rules often limit the deduction to the amount the charity actually receives when it sells the item.
• Art and collectibles: the deduction may depend on whether the charity will use the item in its mission. If it will simply sell it, the deduction can be reduced.

Determine fair market value

Fair market value is what a willing buyer would pay a willing seller. For publicly traded securities this is straightforward. For other property, use comparable sales, thrift-shop value guides or a professional appraisal.

Paperwork you will need

• A written acknowledgment from the charity for any single gift of a certain size, stating what was donated.
• Form 8283 with your return when your noncash gifts exceed a set amount.
• A qualified appraisal for higher-value items, with the appraiser signing the form.
• Photographs and lists of items for smaller donations.

The charity, not you, should place the value on the gift in its receipt. Check irs.gov for current dollar thresholds.

Tips to maximize the benefit

1. Transfer securities directly to the charity rather than selling them first.
2. Confirm the organization is qualified to receive deductible gifts.
3. Donate before year end and keep proof of the transfer date.
4. Ask us before donating real estate, a business interest or a partial interest in property, which have extra requirements.
5. Remember that you must itemize to claim the deduction.

If you are considering a significant gift of property, reach out to our office and we can help you work out the best approach.