Last week, we talked about how charitable contributions may help you reduce your tax obligations. In the article “Your Support Of A Qualified Charity May Provide You With A Money-Saving Tax Deduction,” we said that there were certain contributions that are subject to special rules when you file your deduction, which are listed below.
Contributions Subject To Special Rules
Special Rules apply if you contributed:
· Clothing or household items
· A car, boat, or airplane
· Taxidermy property
· Property subject to debt
· Inventory from your business
· A patent or other intellectual property
This week we will discuss the special rules for deducting charitable contributions of clothing and household items and a car, boat or airplane.
Deducting Charitable Donations of Clothing and Household Items
You cannot take a deduction for clothing or household items you donate, unless the clothing or household items are in good used condition or better.
Exception: You can take a deduction for a contribution of an item of clothing or a household item that is not in good used condition or better, if you deduct more than $500 for it and include a qualified appraisal of it with your return.
Deductible Household Items
Household Items Include:
· Furniture and furnishings
· Other similar items
Household Items Do Not Include:
· Paintings, antiques, and other objects of art
· Jewelry and Gems
Determining How Much You Can Claim as a Deduction for Clothing and Household Items Donations
This section discusses the general guidelines for determining the fair market value of donated clothing or household items. Fair market value is the price at which property would change hands between a willing buyer and a willing seller.
The fair market value of used clothing and other personal items is usually far less than the price you paid for them. There are no fixed formulas or methods for finding the value of items of clothing. You should claim as the value the price that buyers of used items actually pay in used clothing stores, such as consignment shops or thrift shops.
The fair market value of used household items, such as furniture, appliances, and linens is usually much lower than the price paid when new. These items may have little or no market value because they are in a worn condition, out of style, or no longer useful. For these reasons, determining the fair market value by using a percentage of the cost to buy a new replacement is not acceptable.
Deducting Charitable Donations of Cars, Boats, and Airplanes
The following rules apply to any donation of a qualified vehicle. A qualified vehicle is:
- A car or any motor vehicle manufactured mainly for use on public streets, roads, and highways.
- A boat
- An airplane
Determining How Much You Can Claim as a Deduction for Donating a Car, Boat or Airplane
If you contribute a car, boat, or airplane to a charitable organization, you must determine its fair market value.
Except for inexpensive small boats, the valuation of boats should be based on an appraisal by a marine surveyor because physical condition is critical to the value.
To find the fair market value of a donated car, use the price listed in a used car guide for a private party sale, not the dealer retail value. However, the fair market value may be less if the car has engine trouble, body damage, high mileage, or any type of excessive wear. When using the used car guide, the fair market value is only the same if it is the same make, model, and year, sold in the same area, in the same condition, with the same or similar accessories.
Charitable Donations more than $500
If you donate a qualified vehicle to a qualified organization and you claim a deduction of more than $500, you can deduct the smaller of:
· The gross proceeds from the sale of the vehicle by the organization (or)
· The vehicle’s fair market value on the date of the contribution. If the vehicle’s fair market value was more than your cost to acquire the vehicle, you can only deduct the amount you paid or the fair market value at the time you acquired the vehicle.
· You must attach to your return Copy B of the Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, (or other statement containing the same information as Form 1098-C) you received from the organization. The Form 1098-C will show the gross proceeds from the sale of the vehicle.
· If you e-file your return, you must (a) attach copy B of Form 1098-C to Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return, and mail the forms to the IRS, or (b) include a PDF attachment of Copy B of Form 1098-C.
Charitable Donations Deductions $500 or less
If the qualified organization sells the vehicle for $500 or less and the exceptions 1 and 2 do not apply, you can deduct the smaller of $500, or:
· The vehicle’s fair market value on the date you donated the item. (or)
· If the vehicle’s fair market value is at least $250 but not more than $500, you must have a written statement from the qualified organization acknowledging your donation.