It is not uncommon for nonprofit organizations to receive donations of tangible property from supporters in addition to cash contributions. Special rules apply when valuing such property and providing donors with the right kinds of documentation to substantiate deductions claimed for these donations.
Here are some common questions nonprofits have about valuing and substantiating non-cash gifts.
What is the minimum threshold for substantiating non-cash contributions? Donors must substantiate non-cash property that is valued at less than $250 with a receipt listing the charity’s name and address, the date the donor made the contribution, and a detailed description of the property. For non-cash property that’s valued between $250 and $500, donors must obtain a contemporaneous written acknowledgement, or CWA.
For non-cash property that is valued between $500 and $5,000, donors must obtain a CWA and file Section A of IRS Form 8283 with their tax return. And for non-cash property that is valued at more than $5,000, donors must obtain a CWA, file Section B of Form 8283, and obtain a qualified property appraisal.
How does the IRS define a “qualified appraisal”? A qualified appraisal is performed in accordance with generally accepted appraisal standards by a qualified appraiser. This appraiser must meet certain educational and experience requirements, such as successfully completing coursework and possessing at least two years of relevant experience, as well as earning a recognized appraiser designation from a professional appraiser organization.
See IRS Publication 561 for more details on appraiser requirements. The appraiser must sign and date the appraisal no sooner than 60 days before the donor made the contribution and no later than the extended due date of the donor’s tax return.
Should my organization help donors set a value for donated tangible property? Sometimes donors ask charitable organizations to help them value property they donate to the organization. However, nonprofit organizations are not considered qualified appraisers.
You should deny these requests and instead thank them for the donation and explain that you are not qualified to help them value their contribution, nor would your opinion be binding.
Are donations of vacation time at a cabin or condo deductible for donors? Consider a supporter who donates a week’s stay at a mountain cabin, beach condo, or timeshare and wants to deduct it. The value of this time is not deductible on the supporter’s tax return.
According to the IRS, deductions for the partial use of a vacation property are prohibited. The donor must relinquish the property in its entirety for the donation to be tax-deductible.
How should donors substantiate contributions of high-value property like artwork and jewelry? Special rules apply to substantiating these kinds of property donations. If a piece of artwork is worth more than $20,000, the donor must obtain a qualified appraisal and attach a signed copy of it to his or her tax return. Preferably, the appraiser of the donation should specialize in the particular type of artwork.
For jewelry and artwork valued at more than $20,000, donors should retain a photograph of the item that they can show the IRS if requested. Ideally, the photo should be at least 8”x10” and in color.
How is the value of stock donations calculated for deduction purposes? Donating appreciated securities like stock can be a tax-wise strategy for both donors and charities. The donor avoids paying capital gains tax on the stock, while the charity receives the full value of the security when it sells.
But how is the security valued? According to the IRS, the value of a donated security for deduction purposes is its value at the midpoint of the day on which it is donated—not the day the stock is sold. The donor is considered to have parted dominion over the stock on the day he or she donates it.
IRS Publications 561, 526, and 1771 contain useful information for charities and donors regarding valuing donated property and substantiating non-cash donations. You can download them at irs.gov.
Our tax team is happy to discuss non-cash gift valuation and substantiation in more detail.
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Our firm provides the information in this article for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this blog are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability and fitness for a particular purpose.