This is part eight in our series on Itemized Deductions. To read the rest of the series, click here. For additional information regarding 2014 tax planning, you can download our 2014 Tax Planning Guide from the Resources tab on our website.
Noncash gifts are a mixed bag and have a lot of special circumstances. Let’s take the easiest and most common situation first—donating used household goods and clothes to the local branch of Goodwill or The Salvation Army. The deduction for used goods is thrift-shop value—so if you donate a shirt, the value is an estimate of how much the thrift shop can sell the item for. If you don’t know how to estimate the value of your donation, both Goodwill and The Salvation Army have valuation guides on their websites. Try goodwill.org or satruck.org. Make a list of the items you donate. Taking digital pictures is also a good idea.
An often-overlooked noncash charitable contribution is mileage and unreimbursed expenses. Mileage is deductible at a rate of 14 cents per mile. And unreimbursed charitable expenses also are deductible. Keep receipts, and document expenses under $250. For expenses exceeding $250, request a written acknowledgement from the charity.
Noncash gifts over $5,000 have special requirements. You need to report these gifts on a special form (Form 8283), and these gifts are subject to an appraisal declaration with an independent appraiser signing Part III of the form. Even if you are a qualified appraiser, don’t even consider appraising your own gift—one real estate appraiser tried to do this only to have his deduction disallowed by the Tax Court. However, there are exceptions where no appraisal is required—publicly traded securities, non-publicly traded securities (less than $10,000) and business inventory all are exempt from appraisal.
If you are planning on making a large noncash gift of art, real estate or some type of collectible, consult a financial advisor prior to making the donation. There are a number of pitfalls and special rules. Deductions might be limited regardless of appraised value if you created the artwork yourself or have only held the art object for a short time. Not knowing the rules and failing to fulfill all the requirements might put the deduction in jeopardy. This type of deduction is really an example of where you want to be sure to dot all the i’s and cross all the t’s.
Using appreciated securities (held longer than one year) is a great way to make charitable contributions. The taxpayer is allowed a charitable deduction for the full market value of the securities and avoids capital gains tax that normally would be paid if the securities were sold. As noted above, publicly traded securities are also exempt from the normal IRS appraisal requirements even if the gift exceeds $5,000. A few words of caution: If you have securities with a loss, sell the stock to lock a capital loss and then donate the remaining cash. If you don’t, you’ll miss the opportunity to take the capital loss.
Next time, we’ll look specifically at donating vehicles.