In recent years, new rules have tightened the reporting requirements for charitable contributions of cash on your tax return. But you should be aware that stringent rules also apply to donations of non-cash property.
Let’s review the key tax rules.
Cash gifts: You cannot claim a deduction for any contribution of cash, checks, credit card charges or other monetary gifts unless you keep a record of the donation. The record can be in the form of a bank record or a written communication from the charity (such as a receipt or letter). It must show the name of the charity, the date of the contribution and the amount.
Non-cash gifts: If you give a non-cash gift to charity, you generally can deduct an amount equal to your basis in the property. However, if the property would have qualified for long-term capital gain if you had sold it, the deduction is equal to the property’s fair market value. For example, this would apply if you donate stock you’ve owned for more than one year. (See right-hand box for examples.)
The records you must keep for tax purposes depend on whether your deduction exceeds the thresholds of $250, $500 or $5,000. When figuring if your deduction is $500 or more, combine deductions for all similar types of property donated to any charitable organization during the year.
Note: You cannot take a deduction for donated clothing or household items, such as furniture and electronics, unless the items are in good used condition or better.
Deductions Less Than $250
If you make a non-cash donation of any amount, you should generally obtain a receipt from the charitable organization showing its name, the date and location of the donation and a reasonably detailed description of the property. A statement or other written communication from the charity with this information will suffice. But a receipt is not required if it would be impractical to obtain one (for example, you leave items at an unattended drop site).
In addition, you must keep reliable written records containing the following:
- The fair market value of the property at the time of the donation and how you valued it.
- The basis of the property if you held it for a year or less.
- The amount you’re claiming as a deduction if you donated a partial interest.
- The terms of any conditions attached to the gift.
Deductions of at Least $250 but Not More than $500
In addition to the record keeping requirements described above, you must obtain a written acknowledgment of your contribution from the charitable organization. The acknowledgment should include a description of the property donated (but not necessarily its value), whether the organization provided any goods or services in return, and a description and good faith estimate of any goods or services. Exception: The latter requirement does not apply to an intangible religious benefit such as admission to a religious ceremony.
The written acknowledgment must be obtained by the earlier of:
- The date you actually file your tax return for the year of the contribution; or
- The due date, plus extensions, for filing the return.
Deductions of More than $500 but Not More than $5,000
You must have the records and written acknowledgment described above for deductions of $500 or less. Furthermore, your records must include all of the following:
- The manner in which you acquired the property (for example, purchase, gift, inheritance or exchange).
- The approximate date you received the property (or the date of creation or completion).
- The adjusted basis of the property other than publicly held securities.
If circumstances do not enable you to supply information on the date of receipt and basis of the property, attach a statement to your return explaining the situation.
Deductions of More than $5,000
In addition to meeting all the requirements for deductions up to $5,000, you generally are required to obtain a qualified written appraisal of the property from a qualified appraiser. A “qualified appraiser” must be certified by a professional organization or meet education and experience requirements under IRS regulations.
When determining if your deductions exceeds the $5,000 threshold, combine your deductions for all similar items donated to any charitable organization during the year.
Important: The higher the deduction you’re claiming, the more you have at stake. Your tax professional can help maximize the benefits on your tax return.