What the IRS Says About How Taxpayers Should Value Gifts of Property

How to Value a Gift of Property

Donors of cars, used clothing, and household goods — not the charities that receive them — are supposed to calculate the fair market value of their contributions by following federal law and publications that explain the law issued by the Internal Revenue Service.

That can often be difficult to do.

“Determining the value of donated property would be a simple matter if you could rely only on fixed formulas, rules, or methods,” the I.R.S. says in its bible for taxpayers on the subject, “Determining the Value of Donated Property,” a booklet also known as Publication 561. “Usually it is not that simple.”

Fair market value is the price that the property would fetch on the open market. “It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts,” the I.R.S. says.

Donors are supposed to take four main factors into account: the item’s original cost or the price received by the charity that resells the item; sales of comparable properties; replacement cost; and opinions of experts.

The I.R.S. provides advice for valuing specific types of property:

Cars, Trucks, Recreational Vehicles, Boats, and Aircraft

Donors can use guides published by companies and trade organizations that show dealer-sale and other prices for recent model years. Prices are reported for each make, model, and year of the vehicle or craft. The guides also provide estimates for adjusting for unusual equipment, mileage, and physical condition.

The I.R.S. says those guides can be helpful in setting value yet must not be relied upon exclusively. “The prices are not ‘official,’ and these publications are not considered an appraisal of any specific donated proper ty,” the government says. “But they do provide clues for mak ing an appraisal and suggest relative prices for comparison with current sales and offer ings.”

An example provided by the I.R.S. makes clear that a donor must use price guides only as a starting point.

“You donate your car to a local high school for use by students studying automobile repair,” the service says. “Your credit union told you that the ‘Blue Book’ value of a car like yours is $1,600 in good condition. However, your car needs extensive repairs. After checking with repair shops and used car dealers, you find that the car should sell for $750. You may use $750 as the fair market value of the car.”

Clothes

Used clothing and other personal items “are usually worth far less than the price you paid for them,” the I.R.S. says.

The government adds that the valuation of articles of clothing does not lend itself to fixed formulas or methods. “The price that buyers of used items actually pay in used clothing stores, such as consignment or thrift shops, is an indication of the value.”

Household Goods

The fair market value of used household goods, such as furniture, appliances, and linens, is usually much lower than the price paid when new.

“Such used property may have little or no market value because of its worn condition,” the revenue service says. “It may be out of style or no longer useful.”

What Records to Keep

Donors must keep records to back up their gifts of property, which are explained in the I.R.S. publication “Charitable Contributions,” also known as Publication 526. The required documentation depends on the size of the taxpayer’s charitable deduction:

Deductions of less Than $250

Donors must get and keep a receipt from the charity that shows:

* The name of the charity.

* The date of the contribution and where it was made.

* A reasonably detailed description of the property.

A letter from the charity confirming receipt of the gift and containing the same information above will serve as a receipt.

“You are not required to have a receipt where it is impractical to get one (for example, if you leave property at a charity’s unat tended drop site),” the I.R.S. says.

Donors must also create and keep written records for each gift, including a reckoning of the fair market value of the property and how the donor figured it.

Deductions of at Least $250 but Not More Than $500

These donors must get and keep an acknowledgment of the gift from the charity that includes the name of the organization, the date and location of the contribution, a reasonably detailed description of the property, and whether the organization gave the donor any goods or services (other than token items of little value) as a result of the gift.

Donors must also keep the written records described in the preceding section.

Deductions of More Than $500 but Not More Than $5,000

These donors must do everything in the preceding section plus keep records that state how and when they got the item they donated to charity.

Deductions of More Than $5,000

Donors who claim a deduction of more than $5,000 for one property item (or a group of similar items) must do everything in the preceding section and also obtain a written appraisal of the donated item.

What to Report to The IRS

Donors report their charitable contributions each year on Schedule A of Form 1040.

Those who make gifts of property totaling less than $500 are not required to list those gifts or file supporting documentation. Donors who claim more than $500 in total deductions for non-cash gifts must fill out and submit Section A of Form 8283, “Noncash Charitable Contributions,” which requires basic information about their gifts, such as a description of the property.

Donors who claim a deduction of more than $5,000 for one item or group of items must complete Section B of Form 8283. This part of the form asks the appraiser to attest to the value of the gift.

The charity that received an item worth more than $5,000 must also fill out part of Form 8283. If that charity sells or otherwise disposes of the gift within two years, it must file Form 8282, “Donee Information Return,” with the I.R.S., and send the donor a copy. The donor must take that sale price into account when calculating the value of the gift for the tax deduction.

I.R.S. Publication 561 on determining the value of donated property and Publication 526 on charitable contributions are available for free by calling (800) 829-3676 or by following the instructions on the revenue service’s World-Wide Web site at http://www.irs.ustreas.gov