According to the IRS, you can deduct cash charitable contributions worth up to 60% of your AGI, with special rules allowing some individual and corporation contributions to be deducted as a different percentage of AGI. However, non-cash contributions, such as clothing, household items, cars, boats, airplanes, business inventory, patents, and intellectual property, follow different rules and are subject to their own deduction limits.
What is considered a tax-deductible donation?
Tax-deductible donations are goods or monetary gifts given to a tax-exempt organization. These donations are eligible to be written off and can reduce your taxable income come tax time.
Qualified organizations include charity groups like Goodwill and the Salvation Army and religious and educational groups. If you qualify, you can report your contributions to charity as an itemized deduction using Form 8283. To deduct a charitable contribution, you must itemize deductions.
What items can I donate for a tax deduction?
Household items that qualify for a tax deduction include:
- Furniture and furnishings
- Electronics
- Appliances
- Linens (sheets, towels, etc.)
- Books
- Tools and equipment (Hand tools, gardening, sporting goods, etc,)
Household items that do not qualify for the deduction include:
- Food
- Paintings, antiques, and other art
- Jewelry and gemstones
- Collectibles
How much can I deduct for household items and clothing?
You can deduct the amount based on a percentage of your Adjusted Gross Income. The fair market value of donated items in good or used condition can be claimed as a deduction on your tax return. You can claim a deduction of up to 60% of your Adjusted Gross Income.
If you donated household items in less than good used condition, if the total estimated value is more than $500, you may still take the deduction. However, you should include a qualified appraisal on your return. For more information on determining the value of non-cash donated property, review IRS Publication 561.
Used Clothing
Over time, the value of your clothing items decreases from the original price that you paid. The fair market value should reflect this decrease in value. Unfortunately, there is no specific formula for calculating the fair market value of used clothing items. You should consider the price buyers would actually pay in used clothing stores, such as consignments or thrift shops.
Household items
Just like clothing items, the fair market value of household items will be significantly less than the amount you paid for brand-new items. The fair market value of used household items should reflect the use. When items are worn, out of style, or no longer useful, the reality is they have very little or no market value. It’s not acceptable to determine the fair market value by using a percentage of the cost to buy a new replacement. Use your best judgment when claiming the true value of your donated household item.
Where to donate clothes to get a tax deduction
To receive documentation of your qualified clothing donation, take your clothes to a local donation center and be sure to get a receipt for your donation. Two of the most popular options are Goodwill and The Salvation Army. If you choose to take your clothes to a donation box, you won’t receive a receipt for your donation unless you choose to document this yourself.
How the vehicle donation tax deduction works
To receive a deduction for your car or any type of automobile, it must be what the IRS considers a “qualified vehicle.” A qualified vehicle could be a car or any motorized vehicle manufactured primarily for use on public streets, roads, and highways. Boats and planes would also be considered motorized vehicles and must meet the same requirements to be claimed as a qualified vehicle.
The amount you can deduct for your donated vehicle depends on its fair market value. The organization you donate to may issue you a copy of Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes. This form will show the donation’s details, including the contribution’s claimed value. Continue reading for methods for determining the FMV when you do not receive Form 1098-C.
How to find the fair market value of charitable contributions
Fair market value is the amount a property, like a car or boat, would sell for between a buyer and seller. Knowing the right value is important for charities to recognize donations properly and for donors to get the correct tax deduction. If the fair market value is predicted incorrectly, either by inflating it or not having evidence to back it up, they could face penalties from the IRS.
Cars
To determine the fair market value of a donated car, you will use the price listed in the used car guide for private party sales, not the dealer retail value. Keep in mind things like engine trouble, high mileage, body damage, and excessive wear will decrease the fair market value. 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, and with similar accessories.
If your vehicle donation is worth $500 or less
The gross proceeds from the sale of your donation can be used to derive the item’s valuation. If a qualified organization sells the vehicle for $500 or less, you can deduct the smaller of the two amounts:
- The gross proceeds from the sale OR
- The fair market value on the date the vehicle was donated.
If your vehicle donation is worth more than $500
The gross proceeds from the sale of your donation can be used to derive the item’s valuation. If a qualified organization sells the vehicle for $500 or less, you can deduct the smaller of the two amounts:
If your vehicle donation is worth $500 or less
The gross proceeds from the sale of your donation can be used to derive the item’s valuation. If a qualified organization sells the vehicle for $500 or less, you can deduct the smaller of the two amounts:
- The gross proceeds from the sale OR
- The fair market value on the date the vehicle was donated.
If your vehicle donation is worth more than $500
If your vehicle has a valuation over $500, you can deduct the smaller of the two amounts:
- The gross proceeds from the sale of the vehicle OR
- The fair market value on the date the vehicle was donated.
Note: If the vehicle’s FMV is an increase from what you paid for the vehicle, you are limited to only claiming the amount you paid or the FMV at the time you purchased the vehicle.
Boats
The actual physical condition of the boat is critical in determining an accurate fair market value. For this reason, you should determine the valuation of your donation based on an appraisal by a marine surveyor – unless the boat is small or inexpensive.
Where to donate vehicles for a tax deduction
If you’re ready to say goodbye and donate your vehicle, you have several options for pickup, depending on your charity preference. Charities like Goodwill, Vehicles for Veterans, and Habitat for Humanity would be happy to accept your donation. Once you schedule a pickup, they’ll come to a location of your choosing, take the vehicle off your hands, and give you a receipt for your donation.
What records do I need to deduct my donated items?
The most important records you can keep regarding donations are your receipts. These receipts provided by the donation recipient will show the date and value of your donated goods. You must include a qualified appraisal with your return for large household items worth more than $500.
For vehicle donations where the fair market value is more than $250 but less than $500, you will need to have a written statement from the organization documenting your donation. The qualifying organization may also provide you with a 1098-C to report the contribution.
How to deduct charitable donations
1. Keep Donation Records: Maintain records of all contributions, including bank statements, receipts, and checks.
2. Document Donations: For donations over $250, get a written acknowledgment from the charity. For noncash donations over $500, complete Form 8283 and include an appraisal for items valued over $5,000.
3. Itemize Contributions: Use Schedule A (Form 1040) to deduct your contributions. Make sure to have receipts that show the date, amount, and organization name.
4. Know the Limits: The IRS has limits on deductions for chartitable contrubitions, which vary based on income and the type of donations.
5. File Accurately: When you file your tax return with TaxSlayer, we make it easy to deduct your qualified charitable donations.
