Thinking of Donating Non-Cash Property?

Recently a client was unpleasantly surprised when I let her know that her non-cash charitable deductions required documentation.  If you itemize deductions, you can generally claim a deduction for qualifying charitable contributions.   However, contributions of non-cash property such as land, antiques, and art objects pose special challenges.  Without proper documentation, I told her, you’re going to have problems claiming a deduction over $5,000.

Most people are aware of the general substantiation requirements for non-cash charitable contributions, and often are under the misconception that these apply to all non-cash charitable contributions. Generally, a written acknowledgement from the donee organization that contains a description and a good faith estimate of value of the property provides enough substantiation to take a deduction on your tax return. However, if you are planning to donate non-cash property valued at more than $5,000, there are additional requirements that you must consider.

Before you make non-cash contribution you must consider the following:

1. It is very important that you classify your donations in groups of similar items such as books, jewelry, clothing and household goods, land, or buildings. Once you classify the items, you must consider each group as one item for purposes of determining the $5,000 threshold. If you donate an item or a group of similar items valued at more than $5,000, you must obtain a qualified appraisal and attach a summary of the appraisal to your tax return. This is especially important because your charitable deduction will be denied if you fail to meet all appraisal and documentation requirements.
2. A qualified appraisal must be prepared by a qualified appraiser in accordance with Generally Accepted Appraisal Standards. The appraisal must include a description of the property, its condition, the effective date of valuation, its fair market value, and other details related to the use, sale, or other disposition of the property by the charitable organization.
3. Appraisal fees paid to determine the value of donated property cannot be deducted as part of your charitable contribution. However, you can deduct these expenses as miscellaneous itemized deductions subject to the 2 percent of adjusted gross income limitation.
4. The additional substantiation requirements for charitable contributions of non-cash property exceeding $5,000 do not apply to donations of publicly traded securities, inventory, or qualified vehicles sold by the donee organization without any significant use or material improvement, and for which an acknowledgement is provided

Make sure you keep good records of all of your charitable contributions, especially of your non-cash contributions. If you are planning to donate non-cash property other than marketable securities, inventory, or qualified vehicles, you must consider the property’s value and the cost of the additional substantiation requirements before making a donation. Remember that if you donate an item or a group of similar items valued at more than $5,000, you must obtain a qualified appraisal and attach a summary of the appraisal to your tax return… your deduction will otherwise be denied.