NON-CASH CONTRIBUTIONS

Summer, 2007

Most taxpayers do not utilize the benefits of non-cash contributions.  This deduction can mean cash in your pocket with little effort.  When you clean out your closets and drawers, replace appliances or furniture, and other household items, those old items that are "in good used condition or better" are worth cash in the form of tax deductions, while helping a charity at the same time.  Let’s say that you gave charity two suits, four shirts, four ties and a pair of shoes which cost you new about $1,500, plus four dresses, eight sweaters and six pair of ladies shoes, which cost you new $2,400 and finally, you gave charity a television that cost $1,100.  The total of all these items had a new cost of $5,000 and let’s say they are worth 20% of new cost in a thrift shop, that equates to $1,000 in tax deductions as an itemized deduction.  If you are in the 28% federal tax bracket and 6% state tax bracket, this deduction is equal to $340 reduction in income taxes, the same as cash in your pocket. 

How do you support these deductions?  Make a list of each item showing a description and your new cost.  Total the cost column and attach a receipt from the charity.  Be sure to get the receipt even though you have to fill in the information.  A written receipt is required to claim a deduction for a contribution exceeding $250.    Also, the reason for using new cost on the list is to help to determine the thrift value of the items given. 

When total non-cash items exceed $500 in value, Form 8283 has to be attached to your return showing the donee’s name and address, date of contribution, description and donor’s basis of donated property.  The list and receipt helps provide information needed to complete this form. 

Up to this point we have only discussed clothing and household items.  Churches, schools, and other charities will also accept other non-cash items such as vehicles.  The value of these items can be found on the internet or in publications such as "N.A.D.A".  The values are reported by make, model and year of used car, aircraft, truck, recreational vehicle, motorcycle, or boat.  These guides also provide estimates that allow adjusting for unusual equipment, unusual mileage, and the physical condition.  If you donate a vehicle with a value of more than $500, a copy of the written acknowlegement received from the charity must be attached to your return. If the charity sells the vehicle, your donation is limited to the lessor of the fair market value on the date of contribution or the proceeds received from the sale.

Publicly traded stocks and bonds is another example of items that fall under non-cash contributions.  If you have made a commitment to a public charity and do not have the cash, giving stocks or bonds may be your answer. You are entitled to deduct the fair market value of the appreciated property on the date contributed, without paying tax on your unrealized gain. However, if you sell the stocks and donate the proceeds, you would pay tax on the gain. If the stocks have declined in value and you would recognize a capital loss, you should sell the stocks and then donate the proceeds. 

Other non-cash items could include art, real estate, collectibles, gems or jewelry, books, etc.  If the fair market value of any items exceed $5,000, then you must have a written appraisal to attach to your return or the appraiser must complete Section B, Part III of Form 8283, Non-Cash Contributions. 

Any art contributed with a fair market value of $20,000 or more, must have a complete written appraisal along with pictures attached to the return.  Art includes paintings, sculptures, watercolors, prints, drawings, ceramics, antique furniture, decorative arts, textiles, carpets, silver, rare manuscripts, historical memorabilia, and similar objects. 

Just remember to document your contributions with descriptions, value and receipts.