FOCUS ON CHARITABLE GIVING: Charitable Donations of Property Are Deductible Only If Special Rules Are Followed

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FOCUS ON CHARITABLE GIVING: Charitable Donations of Property Are Deductible Only If Special Rules Are Followed
March 13, 2008
From the March 2008 Riker Danzig Tax and Trusts & Estates Update.
Area(s) of Practice:
Estate Planning & Administration, Tax Law

Making a contribution of property to a qualified charitable organization is only the first step necessary to appropriately obtain an income tax deduction for the contribution. In order to ensure that you can properly take a deduction for the contribution, proper valuation, record keeping and reporting requirements need to be followed.

Value of the Property Contribution:
Generally, if you contribute long-term capital gain property to a public charity that can be directly used by the charity in carrying out its exempt purposes (the so-called “related use” doctrine), the value of your charitable contribution is the fair market value of the property at the time of the contribution. The deduction for contributions of property that have decreased in value (i.e., clothes, furniture, and appliances) is similarly limited to its fair market value (regardless of your basis in the donated property).

Please note that property donations (other than publicly-traded securities) to private foundations can be deducted only to the extent of the lesser of basis or fair market value.

Record-Keeping Requirements:
For charitable contributions of property, the records you must keep depend on the value of the contribution. For property contributions valued at less than $250, the burden is on you, not the charitable organization, to retain either: (1) a canceled check, (2) a receipt (or a letter or other written communication) from the charitable organization showing the name of the organization, the date and location of the contribution, and the amount of the contribution, or (3) other reliable written records that include the information detailed above. You are not required, however, to have a receipt where it is impractical to get one (for example, if you leave property at a charity’s unattended drop site).

It is your responsibility to obtain a written acknowledgement from a charity for any single contribution of $250 or more (and this includes gifts from you to your private foundation), and to keep records to prove the amount of the property contributions made during the year, in order to claim a charitable deduction. An organization that does not acknowledge a contribution incurs no penalty; but without the written acknowledgement, you cannot claim the tax deduction. Although it is your responsibility to obtain a written acknowledgement, the charitable organization can assist you by providing a timely, written statement containing (1) the name and location of the organization, (2) date of the contribution, (3) a description (but a valuation is not required) of the property contribution, and (4) a statement that no goods or services were provided by the charitable organization in return for the contribution, if that was the case, or a description and good faith estimate of the value of the goods or services, if any, that the charitable organization provided in return for the contribution.

For property contributions having a value between $500 and $5,000, in addition to the written acknowledgement requirements stated above, you must also keep a record that includes: (1) how you obtained the property, for example, by purchase, gift, bequest, inheritance, or exchange; (2) the approximate date you obtained the property; and (3) the cost or other basis, and any adjustments to the basis, of property held less than 12 months. If you contribute over $5,000 of property, in addition to the written acknowledgement requirements for property contributions between $500 and $5,000, you must also obtain a qualified written appraisal of the donated property from a qualified appraiser.

Letters, postcards, or computer-generated forms from the charitable organization with the above information are acceptable. An organization can provide either a paper or electronic (e.g., email) copy of the acknowledgement to you. As a courtesy, recipient organizations typically send written acknowledgements to donors no later than January 31st of the year following the property donation.

Reporting Requirements:
Charitable contributions of property may require added reporting in addition to including the contributions on Line 17 of Schedule A of your federal income tax return (Form 1040). If your total deduction for all property contributions for the year is over $500, you must complete the Non-Cash Charitable Contribution Form (Form 8283) and attach it to your federal income tax return. Generally, for donations of a vehicle, boat, or airplane for which you might like to claim a charitable deduction, a copy of the 2007 Contributions of Motor Vehicles, Boats & Airplanes Form (Form 1098-C) must be attached to your federal income tax return. In addition, for charitable contributions of property over $5,000, you must attach a qualified appraisal of the property to your federal income tax return. The IRS can disallow your deduction for property contributions if the proper ancillary documentation is not attached to your federal income tax return.

Finally, although it is your responsibility to follow the foregoing requirements, donee charitable organizations should routinely provide written acknowledgements to enable you to claim a charitable deduction and encourage donors to continue to contribute to the charity in the future.