One man’s trash is another man’s treasure.
By Tom Umstattd, CPA
There are many folks less blessed than we who would greatly appreciate the stuff in our garages & attics. Or perhaps we have moved, lost or gained weight, or lost a beloved family member and still have some of their personal effects that no one else in our family wants. There are countless charities that receive gifts of personal property: boats, cars, clothing, appliances, shoes, toys, household furnishings, you name it, even real estate. I personally prefer the Salvation Army due to their Christian ideals, rather than Goodwill. Consult the Salvation Army Donation Value Guide to get an idea of how much your donations are worth. The problem is, that when we collect our “junk”, we tend to just drop it off, not get a receipt, not itemize what we gave, and forget all about it at tax time.
Why Not?
It is amazing to me, after 35 years of tax accounting experience, how many people under report their charitable contributions. I usually hear, “I don’t want to get the IRS mad at me,” as if the IRS has emotions! There are 2 emotions, however, inappropriate for making investment decisions: fear and greed; same with determining fair market values.
What are things worth?
As usual, when taking an income tax position, there are some objective criteria to follow, and lots of subjective.
Objective criteria:
- published (e.g. Wall Street Journal) trading ranges for common stocks donated,
- A qualified appraiser’s value for items over $5,000, or
- [donating the ownership of, for example, real estate, moments before the sale to an unrelated party, then using that sales price as the fair market value.]
Tom’s Top Twelve Tips to Transfer usable “junk” to charity:
1.Always get and keep a receipt.
2. Treat amounts you paid for by check or credit card as cash expenses, also out of pocket charitable expenses for volunteer work, car miles ($0.14 per mile). They are cash charitable contributions. No guess work here, they are worth what you paid for them.
3. Know the locations of charities, so when you happen to drive by, you can easily drop off your items. Some charities, such as Texas Paralyzed Veterans, and ARC, will pick up your items from your front porch. And keep the receipt.
4. If you give more than a total of $500 worth of items, then you need to keep track of:
- the date you acquired the property,
- how you acquired the property, and
- the cost of the property.
Very important: write down and itemize the property and number of the items given on a separate piece of paper, or on the receipt from the charity.
5. When the gift is made, write down in detail, using lots of adjectives, what the items are, and the cost(s) especially if over $500. Instead of “electronic” write down e.g. “AM/FM portable, stereo, Sony model 76XL, with dual 3 1/2 inch compatible speakers, condition: good.” Staple this page with charitable receipt in your current year’s “Income Tax File Folder.”
6. Do not write down the value of the items you gave. Psychologically, these items are worth the absolute least to you on the day you give them away. (If they were worth a lot to you, you would likely not yet give them away.) Do not value them at what they are worth to you, value them at what they are worth to someone else who is a “willing, knowledgeable buyer” who wants them. Write values down much later, perhaps when you compile your data for us to prepare your return. You would be surprised how much some things cost in a thrift shop! Stop in and see sometime. Exception: when giving away large dollar items: laptops, equipment, cars, etc., right before you give them away, look to see what they have sold for on eBay recently. Click the link below, then type in your item under “basic search” and click “search:” http://search-completed.ebay.com/search/search.dll?GetResult&query=completed+items&ht=1&combine=y&SortProperty=MetaEndSort Then print out the comparable sale or “completed item,” as eBay calls it, and put this with your charitable receipt.
7. First see our article: Discrimination Against Car Donors, concerning the law for donations of vehicles, boats and planes to charities. Big dollar items such as cars and boats, if valued less than $5,000, currently do not need an appraisal, only the date contributed, acquired, how acquired (e.g. by purchase, gift), your cost and fair market value. Traditionally Kelly Blue Book has been a good source of determining fair market value: www.kellybluebook.com.
8. If you do have a considerable amount of items to give (e.g. spring cleaning, a death of a family member, etc.), consider contributing them to your partnership, and have the partnership give it. Give some in the name of a family member who is in a higher tax bracket than you (you give it to them, and they give it to the charity).
9. Gifts of appreciated property, held more than 1 year, will give you a charitable contribution at their fair market value, and you will not have to pay any capital gains tax.
- Contributing publicly traded marketable securities, such as stock, is extremely easy. Simply call your stock broker, have him or her open a separate brokerage account with the name and federal ID# of your favored charity, then simply direct your broker to make the stock transfer. I have had many clients contribute stocks worth $1000s which they bought, inherited, received from their employer, etc., get the full deduction, and pay no capital gains tax.
- Real estate that you have trouble selling or whose property taxes are high make good candidates for gifts. If you are getting ready to sell appreciated real estate, you can have the title company change the deed just before closing, for an undivided interest (e.g. 10%) in the real estate to your favored charity, then you and the charity together sell the property to the seller. Make sure you talk to the buyer first, and explain what you are doing! Old buildings (without the land under them), especially in rural areas, like barns or old farmhouses, that may need to be torn down, make great gifts to the local fire department. The VFD typically will set it on fire, and for training purposes, practice putting it out. When they are done with it, they usually have destroyed it for you. Sometimes they will even haul it off for you as well.
10. Your charities need to be incorporated, Section 501(c) organizations. Certain Canadian, Mexican, and Israeli organizations also qualify as deductible if you also have taxable income from that country. The charity should send you a written statement saying that they are a IRC Section 501(c)(3) organization, states the value of benefit given, if any, to the donor, or words to that effect. If over $250, this “contemporaneous” receipt needs to be received before the filing of your tax return.
11. Do not ask a charity to tell you how much your donated items are worth. They are not in the appraisal business. Just simply ask for a written acknowledgement and description of your contribution, signed and appropriately dated.
12. If you give property (not including publicly traded securities) worth more than $5,000, you will need to get an appraisal, and have the appraiser sign Form 8283, Section B, which is filed with your tax return. If you donate art worth $20,000 or more, you will need to attach a complete signed appraisal. The charity will need to sign Part IV of your Form 8283 which you will need to attach to your Form 1040. If they then sell this item within 2 years, the charity will be required to report this sale to the IRS on a Form 8282. This is commonly used when someone wishes to bless a charity by giving them a part or all of a piece of real estate, just before closing as discussed in #9 above. The title company should have the charity file the required Form 8282 at closing. I suggest that the taxpayer also file this Form 8282 with their tax return in these circumstances.
And remember, Jesus said, “It is more blessed to give than to receive.”
For more information: See IRS Instructions to Form 8283
*Picture from: http://www.chaoscontrolmichigan.com/resources-galore
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