How to Figure Fair Market Value Donations

Опубликовал Admin
18-08-2021, 07:40
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In the U.S., personal property that you donate to a qualified charitable organization can be deducted from federal income taxes if you itemize deductions on Schedule A of Form 1040. Clothing, household items and vehicles are the most common donations. Generally, the fair market value on the date that the property is donated is used to determine the amount of the deduction.

Valuing Clothing or Household Items

  1. Use available online sources to set the fair market value. In order to deduct the value of donated items, you need to claim the fair market value. This is the price that you could expect someone to pay for the item if you offered it for sale. Some of the leading donation markets, The Salvation Army and Goodwill, for example, have websites that provide reasonable fair market values for a wide range of items.
    • For example, the Salvation Army valuation site, https://satruck.org/Home/DonationValueGuide, sets recommended values for such diverse items as air conditioners, kitchen utensils, and an array of clothing items categorized by age and gender.
    • Craigslist.com is another option for determining the valuation of household items like appliances and furniture.
  2. Make your best good-faith estimate of value. The online valuation sites generally provide a “low” and a “high” value for each item on their list. It is your job as the owner to decide where on that scale to set the value. If you believe your items or clothing are in excellent condition, you should select a value near the “high” end. If you believe that the items are in poor or fair condition, select a value near the “low” end.
    • Your decision is not likely to be questioned by anyone. Once the donation has been made, there's little chance of a review of your particular items. You are basically on your honor to make a fair and honest valuation.
  3. Use a tax software program to determine a fair market value. If you file your taxes using a commercial software program like TurboTax, H&R Block, or TaxAct, you will be prompted by the program regarding any charitable donations. The software will ask you to identify the items you donated and their condition (good, fair, or poor). The program will then assign a reasonable value to your donations.
  4. Research comparable items in local stores that sell used clothing and household items. Before making your donations, you can visit local shops that market similar items. Look for things that are similar in quality to yours. Make note of the prices that you find, and keep these notes as a record. Include the date and location of your visit, just in case you ever need to substantiate your valuations.
    • Consignment shops are a good resource for determining the value of higher priced clothing items, such as coats, business suits, dresses and evening gowns.
    • Visit thrift shops to determine the value of lower-priced clothing and household items.
  5. Get a professional appraisal for valuable clothing items. If you have a single piece of clothing or a household item that is worth more than $500 and is in less than "good" condition, you must obtain a professional appraisal of the item before donating it. You do not need to attach the appraisal to your tax return, but you should keep it for your records in case your donation is questioned.
  6. Report your fair market valuations to the IRS. Keep a record of all donations you make during the year. When you prepare your tax return, complete IRS Form 8283 and attach it to Form 1040 if the fair market value of non-cash donations exceeds $500.

Determining the Value of Used Cars or Other Vehicles

  1. Use a reputable used-car guide to set the value. The Internet has numerous used-car valuation guides that you can use to determine the fair market value for most cars. There are also several printed car valuation guides that you may find in the reference section of your local library. Select one guide, or try several different sources, to compare the assigned values for your vehicle.
    • One of the most popular and universally referenced guides is the Kelley Blue Book (or KBB).
  2. Look up your car by vehicle model and year. Used-car valuation guides, whether online or in print, are organized by car make and model and listed by year. Find the exact match to the car that you are donating.
  3. Make adjustments as needed to the assigned value. Valuation guides generally provide a range of values, from low to high. Lower the fair market value if your donated vehicle has higher than average mileage or is in poor condition. You should also discount the fair market value if the vehicle is not operational, has damage to the exterior or interior, or has excessive wear on tires or other parts.
  4. Get a written “acknowledgment” if your donation is worth more than $500. In order to claim a donation of more than $500 for a single vehicle, you must obtain a written acknowledgment from the donee organization at the time of your donation. This written statement must include a description of the car and the valuation agreed to by the organization. You will need to attach this acknowledgment to your tax return.
    • If the vehicle's fair market value is greater than its basis or adjusted basis, the fair market value may need to be reduced in order to determine the donation.
    • However, when the fair market value is greater than its basis, a gain will result, and arbitrarily lowering the fair market value to get rid of the gain is a bad idea.
  5. Report the appropriate value with your tax filing. When you submit your tax return, you are eligible to deduct either the agreed value of the car as shown in the donee's acknowledgment statement, or the amount that the donee later gets when reselling the car, whichever is lower.
    • If the car is not sold but is used by the charitable organization, you may deduct the estimated fair market value.
    • If the value of the vehicle is $500 or less, you do not need to deduct a sales price. You can deduct the estimated fair market value.

Reporting the Value of Donations Greater than $5,000

  1. Group together all donations of similar items for the year. If you are making several donations, or even a single donation consisting of many separate items, the IRS requires you to calculate the total value of similar items as one donation. For example, individual furniture items are generally valued in a range from $50 up to $1,000, depending on quality. Taken individually, this would not require an appraisal. However, if you are donating many items, the total may exceed $5,000. If so, you would need to get an appraisal of the items you are donating.
    • For valuation purposes, you can categorize items into such groups as paintings, photographs, books, clothing, jewelry, furniture, electronic equipment, household appliances, toys, everyday kitchenware, china, crystal, or silver. The $5,000 limit would apply to each separate group.
  2. Get a valuation from a qualified appraiser. The IRS requires that you must get an appraisal no more than 60 days before the date of your donation. The appraiser must be someone who has been recognized by a professional organization or who conducts appraisals professionally.
    • The appraiser will complete IRS Form 8283 for each group of donated items that value over $5,000.
  3. Take photographs or get other documentation of the quality of the donated items. If possible, take photographs to help you substantiate the values that you place on your property. The IRS allows deductions only for property that is donated in good or usable shape. If your donation is questioned, photos can help you prove its condition.
  4. Claim your deduction and provide the appropriate paperwork. When you file your tax return, submit IRS Form 8283 with your Form 1040. If you donated more than one group of items that exceed $5,000 in value, submit a separate Form 8283 for each group.

Warnings

  • You cannot deduct charitable donations made to individuals or unqualified organizations. You cannot deduct donations if you receive a benefit in return.
  • The IRS sets limits on the amount that you can deduct for charitable contributions. These limits are outlined in IRS Publication 526.
  • Clothing and household items valued at less than $500 must be in good condition to be deducted.
  • The IRS requires you to complete Form 8283 for property valued over $500. Section B is for appraised vehicles and property valued over $5,000.
  • For large assets, the contribution must be complete in order to be taken for a deduction. Partial interest, where you retain a right to use the property, isn't eligible.
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