Category: Personal Finance
It may be difficult to find extra cash to give to charities during these economic times, but clothing, furniture, and other household items are just as welcome. With a little effort on your part, you can get a tax deduction for cleaning out your closets and cabinets!
Do you have suits and shoes, extra furniture, or pots and pans that you never use? If the items are in good condition, consider passing them along to a charitable organization that will get the items to someone who would be pleased to have them. You get more space in your bedroom, living room, or kitchen and the added bonus of a tax deduction. Here’s how it works.
Anytime you gift to charity something other than cash, you need to know the item’s fair market value (FMV). This is easy with a publicly traded stock, mutual fund, or other investment security, since the value is reported daily in the newspaper. It takes more effort to gift land, buildings, or artwork. For these items, a professional appraisal is required by the Internal Revenue Service (IRS) to support a tax-deductible value. For donations of clothing and household items, there are two requirements to meet. The first is in regards to the condition of the items and the second is the determination of the appropriate value.
Condition of Clothing and Household Items
The IRS has become more particular regarding the contribution of clothing and household items to charitable organizations. Since August 17, 2006, any donation of clothing or household items must be in “good used condition or better” in order for the fair market value to be deductible. The IRS has not provided a definition of “good used condition”, but most have assumed that any items that are worn, dirty, or broken would not meet the criteria.
Value of Contribution
When you take clothing and other household items to the charity, you should receive a receipt that includes the name of the charity and a general notation of the items you are donating. It is not the charity’s responsibility to value the items for you. It is your responsibility as the taxpayer to determine the appropriate value to use for the deduction.
There are many resources on the Internet to assist with valuing your items. The Salvation Army and Goodwill both have average price information for used clothing. Some tax preparation software includes a method of documenting and valuing your donated items. You can also purchase software to assist you. One such software program uses the value provided from eBay® auctions to determine the fair market value. A quick search on the Internet will provide many resources for guidance.
Taking a Tax Deduction
To receive a tax benefit for a charitable contribution, you must itemize your deductions on Schedule A. Any taxpayer who takes the standard deduction instead of itemizing will not receive a tax benefit for charitable contributions.
In order to receive a tax deduction, you will need to indicate your non-cash contribution amount on Schedule A, line 17. There is no detail required on Schedule A. However, if the total amount of non-cash gifts is greater than $500, you will also need to complete and file Form 8283 along with your tax return. On this form, you will be required to indicate the name and address of the charitable organization, a description of the donated property, the date of your contribution, the fair market value, and the method used to determine the value. As discussed earlier, for the contributions of clothing and household items, you do not need a professional appraisal, only your best estimate of the fair market value. There is one exception and that is for items that you want to deduct that are not considered to be in good used condition, but are valued greater than $500. For such items an appraisal will be required.
Even if you are not required to complete Form 8283, you need to keep a detailed list with all the necessary information in your tax file. This data will be necessary if your tax return is audited.
Even when dollars are tight, you can still support your favorite charity and help your community. Simply cleaning out your closet can create a win-win-win situation. The charity gets the items you no longer want or use, you get an opportunity to reduce your income tax along with more room around the house, and some person or family will have their needs met. Win-win-win!
Elaine E. Bedel, CFP®, is president of Bedel Financial Consulting, Inc., a wealth management firm providing fee-only financial planning and investment management services. For more information, visit their website at www.BedelFinancial.com or email to firstname.lastname@example.org.
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