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Deducting Noncash Donations Not Easy

If you want to claim itemized deductions for noncash charitable donations on your 2010 Form 1040, gird your loins. Thanks to herds of unscrupulous taxpayers who once made a habit of claiming bogus and inflated charitable write-offs, the Feds have tightened the screws over the years (justifiably so).

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Unfortunately, innocent folks (like you) get squeezed as a result. Here’s a quick summary of the seven rules that apply to the most-common types of noncash charitable donations.

Rule 1

For a donation of a noncash item worth less than $250, you need a receipt from the charity–like the familiar slip you get for noncash donations to Goodwill or the Salvation Army. You need to have the receipt in hand by the time you file your return. Keep it with your tax records, but don’t file it with your return.

Rule 2

For a noncash item worth $250-$5,000, you need a written acknowledgment from the charity (more detailed than a receipt) that meets IRS guidelines. Once again, you need to have this in hand when you file your return. Charities know about this rule, and you should have no problem collecting a suitable acknowledgment. Keep it with your tax records, but don’t file it with your return.

Rule 3

For noncash items worth $501-$5,000, you also need written evidence that supports the item’s acquisition date, its fair market value, how much it cost, and so forth. You’ll need this information to fill out IRS Form 8283 (see Rule 4 below). Keep the written evidence (which may simply be notes that you’ve prepared yourself) with your tax records, but don’t file it with your return.

Rule 4

If your total noncash donations for the year exceed $500, you must fill out Form 8283 (Noncash Charitable Contributions) and file it with your return.

Rule 5

For donated clothing and household items (furniture, furnishings, linens, electronics, appliances, and the like), the general rule says you can only claim deductions for stuff that is in “good condition or better.” However, you can deduct the fair market value of an item that’s not in good condition if you attach a written qualified appraisal that values the item at more than $500 (for example, a piece of antique furniture that’s fairly valuable despite being in only “fair” condition).

Rule 6

For a noncash item worth over $5,000, you generally need what is listed in Rules 2 and 3 plus a written qualified appraisal. Specific appraisal requirements apply to certain types of donated property and to donations valued above certain amounts. However, no appraisal is required for donations of publicly traded securities.

Rule 7

Special restrictions apply to donations of vehicles, planes, and boats. The most important thing to know is that your charitable write-off will usually be limited to the amount of sales proceeds when the charity sells the vehicle, plane or boat (as opposed to any estimated fair market value for said vehicle, plane, or boat). In other words, the general rule is the IRS doesn’t care what anybody thinks a vehicle, plane, or boat is worth. The Feds only care what it actually sells for.

For More Information

Believe me, what you see here is only a quick and dirty summary of the rules that apply to the most common types of noncash charitable donations. Sad but true! For additional information, see the Form 8283 instructions and IRS Publication 526 (Charitable Contributions). Both are available at the IRS website: www.irs.gov.


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About The Tax Blog

  • The Tax Blog brings together a team of award-winning tax journalists from the Dow Jones network and around the web to examine the tax issues, changes and legislation that affect families, investors and small business owners. Our contributors include Tax Report columnist Laura Saunders (WSJ), Tax Guy columnist Bill Bischoff and senior reporter Jilian Mincer (SmartMoney.com), retirement-focused reporter Anne Tergesen (WSJ), wealth management writer Arden Dale (Dow Jones Newswires), TaxWatch columnist Eva Rosenberg and personal finance reporter Andrea Coombes (MarketWatch), and reporter Alyssa Abkowitz (SmartMoney). They’ll provide the latest news and insight, mine the tax code for tips and loopholes, and answer your questions about tricky tax situations. Contact the The Tax Blog with ideas, suggestions or tax questions at thetaxblog@dowjones.com.