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Deducting Donations – IRS Tax Rules

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With my girlfriend wanting to donate a car, my roommate donating old furniture, and minor cash donations, I thought that I’d do a little research into the rules and procedures governing the deduction of donations from your taxes. It’s a little early, considering 2005 tax returns aren’t due for another ten months (tick tock!), but it’s better to know the procedure before crunch time than scrambling last minute.

Eligibility:
In order to deduct charitable donations from your taxes, you basically need to satisfy two conditions:

  1. Itemize Your Deductions – Folks taking the standard deduction won’t get a tax benefit for charitable donations.
  2. Donate to a Qualified Organization – Normally you can just ask and they’ll tell you, but IRS Publication 78 (it’s been upgraded to a search and is not a PDF) has a list of the common ones.


What You Donate:
The easiest thing you can donate is cash. You deduct the actual cash amount you donate.

The simplest things you can donate is property of some kind – whether it be a car, clothes, furniture, land, or any number of physical item. The general rule is you are able to deduct the fair market value of the item, as governed by the rules of IRS Publication 561 – Determining the Value of Donated Property. The rules for donating cars have changed recently from fair market value being determined by a blue book value to the actual price the car is sold for at auction.

If you donate your time and services, you cannot deduct any of it. You can’t take the fair market value of your service or anything like that, but you can deduct some personal expenses you wouldn’t have incurred had you not donated your services. An example is that you can deduct the cost of transportation to the location you are donating your services but you wouldn’t be permitted to deduct the cost of meals (since you would presumably have eaten regardless of your philanthropic efforts).

When You Donate:
The timing of your donation will affect when you can deduct it. It was easier back before checks and credit cards because you could control when items left your possession. For property, as soon as it leaves your hands you can count it in that year. For cash, the same rule applies as well. For checks and credit cards, you can deduct it the year in which you mail the check or apply the charge – not when the check is actually cashed or when the credit card is paid for.

Deduction Limits:
If you donated less than 20% of your adjusted gross income (AGI), move on, this won’t apply. Otherwise, the rules state that the most you can deduct is 50% of your AGI and, depending on your property, this limit may be capped at 30% and 20%. The rules are pretty extensive and probably don’t affect many people so I won’t go into them, check out pages 9 and 10 of Publication 526 for the rules.

Records:
Since you’ll be reducing how much Uncle Sam gets, they might come ask you about it. For cash donations, if it’s under $250, just keep a receipt of the donation or some other personal record of it. The rules for under $250 are pretty lax since for $20 donation to your church you probably don’t get a receipt. If you donate more than $250, you need to get an acknowledgement from the receiving organization that must meet these criteria: date, donation amount, what you received in return, description and good faith estimate of the value of the donation.

For property donations, the records you must keep are pretty extensive. The rules are basically the same for under $250 (date, location, description of property, and organization) and over $250, except if the property is over $500 but under $5000, you will need to explain: how you received the property, when you received/created it, and your cost basis. If it’s over $5000, then you will need a qualified written appraisal of the property in addition to everything else before it. So to recap, if you donate a $10,000 car you will need to follow the rules for under $250, between $250 and $500, between $500 and $5000, and then the final rule of over $5000 donations. It’s a lot of paperwork!

I hope all this information was helpful and, more importantly, correct. If you notice any inaccuracies or errors, let me know and I’ll fix this post. Thanks!

Helpful IRS Publications:
IRS Publication 526 – Charitable Contributions
IRS Publication 561 – Determining the Value of Donated Property

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15 Responses to “Deducting Donations – IRS Tax Rules”

  1. J says:

    Thanks for the info! Do the requirements apply to any SINGLE donation or your total donations? So no receipt is needed for a property donation under $250, even if you make 100 donations (each under $250) over the cource of the year?

  2. jim says:

    The requirements are per single donation, so if you donate 100 pieces of property under $250 each at separate times, you only need to keep records for under $250 non-cash donations for each donation. You are still subject to donation limits and they can always come back and ask for more information. Chances are they’ll ask you for records and then ask the organization you donate to for corroborating records (since they will likely keep records as well).

  3. FMF says:

    Should have donated the car last year. I did and was able to take off the Blue Book value. Now you can only take what the charity sells it for (which is probably going to be less since they just want to liquidate it and get the $$$$).

  4. jim says:

    Yeah, except the car died a month ago and until then, there wasn’t any indication it was going to go… oh well. She’s planning on donating it to her school’s shop class so they can work on it. Not entirely sure how that works since the school isn’t going to liquidate it… I also don’t know if they’re considered an eligible organization. The car isn’t worth too much anyway with the head gasket problem, radiator leak and the sticky clutch.

  5. This Week’s Carnival of Personal Finance

    This Week’s Carnival of Personal Finance is up at All Things Financial. Here are some of the ones I found interesting and/or helpful (of course, your mileage may vary):

  6. Elliott Mumper says:

    Our church is in the process of trying to buy a house that has been used by an engineering firm (it is now zoned commercial) as an office. If this firm sells our church this property less than the fair market value an assessor has determined it to be worth; can it deduct the difference between what we pay for the property and the fair market value that he may lose in the transaction as a donation?

    Thank-you,
    Elliott Mumper

  7. jim says:

    Elliott,
    Why not simply pay the business the FMV of the property and then have them donate the money to you? The proceeds of the sale would be considered income and the donation would be tax deductible. Would that not have the same effect?

    Disclaimer: I am not a tax professional, please consult a professional before you make any decisions.

  8. jeff brantley says:

    I have donated each year over 50,000 in cash and am now being audited because the auditor can’t find a check or some other way to sustantiate the deduction EVEN though I have EVERY record amount and date from the financial institutions that I gave too. PLease help. These guys are wearing me out…By the way I had a house burn, rehabbed child, divorce,business embezzled from….shall I go on…..I am one of the good guys and I just don’t understand this. Any help…Thanks….JB

  9. Mark says:

    I donate lots of clothing which I collect from garage sales. The IRS doesn’t know how the ‘cost basis’ applies to my donations (over 5k for the group of items). If my cost basis is zero, the IRS is not sure if the item is deductible. If I have a minimal cost basis (well below Fair Market Value, or thrift shop value), is/are the item/items still deductible?

  10. DAVID KHARAT says:

    I am looking for a list of allowable donations with its value. if you happend to have one appricita sharing with me.
    thanks

  11. noel says:

    Since it is now 2011, has the dollar amount of cash or other property donations exceeeded the $250 needed for a letter from the charity?

  12. Mark says:

    I want to donate some vacant land to a local church. The state tax value is $19,000. Can I use the states county assesed tax value ?

  13. Angel says:

    Are direct donations to a family member tax deductible? This was to help out a family member without employment.

    • Jim says:

      No, it has to be a recognized charitable organization, usually a 501(c)(3). So donations to family or to political parties and candidates are not included.

  14. bj says:

    If I donate a picture worth $140 to a non-profit for auction what’s the point of deducting it/writing it off? What do I gain? Do I gain anything?


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