Contributions
of Property
If you contribute property to a qualified organization, the amount
of your charitable contribution is generally the fair market value of the
property at the time of the contribution. However, if the property has increased in value,
you may have to make some adjustments to the amount of your deduction. See Giving
Property That Has Increased in Value, later.
For information about the records you must keep and the information you must furnish
with your return if you donate property, see Records To Keep and How To
Report, later.
Contributions Subject to
Special Rules
Special rules apply if you contributed:
- Property subject to a debt,
- A partial interest in property,
- A future interest in tangible personal property, or
- Inventory from your business.
These special rules are described next.
Property subject to a debt. If you contribute
property subject to a debt (such as a mortgage), you must reduce the fair market
value of the property by:
- Any allowable deduction for interest that you paid (or will pay) attributable to any
period after the contribution, and
- If the property is a bond, the lesser of:
- Any allowable deduction for interest you paid (or will pay) to buy or carry the bond
that is attributable to any period before the contribution, or
- The interest, including bond discount, receivable on the bond that is attributable to
any period before the contribution, and that is not includible in your income due to your
accounting method.
This prevents a double deduction of the same amount as investment interest and also as
a charitable contribution.
If the debt is assumed by the recipient (or another person), you must also reduce the
fair market value of the property by the amount of the outstanding debt.
If you sold the property to a qualified organization at a bargain price, the amount of
the debt is also treated as an amount realized on the sale or exchange of property. For
more information, see Bargain Sales under Giving Property That Has Increased
in Value, later.
Partial interest in property. Generally, you
cannot deduct a charitable contribution (not made by a transfer in trust) of less
than your entire interest in property. A contribution of the right to use property is a
contribution of less than your entire interest in that property and is not deductible.
Example 1. You own a 10-story office building and donate
rent-free use of the top floor to a charitable organization. Since you still own the
building, you have contributed a partial interest in the property and cannot take a
deduction for the contribution.
Example 2. Mandy White owns a vacation home at the beach that
she sometimes rents to others. For a fund-raising auction at her church, she donated the
right to use the vacation home for one week. At the auction, the church received and
accepted a bid from Lauren Green equal to the fair rental value of the home for one week.
Mandy cannot claim a deduction because of the partial interest rule just discussed.
Note. Lauren cannot claim a deduction either because she
received a benefit equal to the amount of her payment. See Contributions From Which
You Benefit, earlier.
Exceptions. You can deduct a charitable contribution of a
partial interest in property only if that interest represents one of the following listed
items.
- A remainder interest in your personal home or farm. A remainder interest is one that
passes to a beneficiary after the end of an earlier interest in the property.
Example.
You keep the right to live in your home during your lifetime and give your church a
remainder interest that begins upon your death.
- An undivided part of your entire interest. This must consist of a part of every
substantial interest or right you own in the property and must last as long as your
interest in the property lasts.
Example. You contribute voting stock to
a qualified organization but keep the right to vote the stock. The right to vote is a
substantial right in the stock. You have not contributed an undivided part of your entire
interest and cannot deduct your contribution.
- A partial interest that would be deductible if transferred in trust.
- A qualified conservation contribution (defined under Qualified conservation
contribution in Publication 561).
For information about how to figure the value of a contribution of a partial interest
in property, see Partial Interest in Property Not in Trust in Publication 561.
Future interest in tangible personal property. You
can deduct the value of a charitable contribution of a future interest in tangible
personal property only after all intervening interests in and rights to the actual
possession or enjoyment of the property have either expired or been turned over to someone
other than yourself, a related person, or a related organization.
Related persons include your spouse, children, grandchildren, brothers, sisters, and
parents. Related organizations may include a partnership or corporation that you have an
interest in, or an estate or trust that you have a connection with.
Tangible personal property. This is any property, other
than land or buildings, that can be seen or touched. It includes furniture, books,
jewelry, paintings, and cars.
Future interest. This is any interest that is to begin at
some future time, regardless of whether it is designated as a future interest under state
law.
Example. You own an antique car that you contribute to a museum.
You give up ownership, but retain the right to keep the car in your garage with your
personal collection. Since you keep an interest in the property, you cannot deduct the
contribution. If you turn the car over to the museum in a later year, giving up all rights
to its use, possession, and enjoyment, you can take a deduction for the contribution in
that later year.
Inventory. If you contribute inventory (property
that you sell in the course of your business), the amount you can claim as a
contribution deduction is the smaller of its fair market value on the day you contributed
it or its basis. The basis of donated inventory is any cost incurred for the inventory in
an earlier year that you would otherwise include in your opening inventory for the year of
the contribution. You must remove the amount of your contribution deduction from your
opening inventory. It is not part of the cost of goods sold.
If the cost of donated inventory is not included in your opening inventory, the
inventory's basis is zero and you cannot claim a charitable contribution deduction. Treat
the inventory's cost as you would ordinarily treat it under your method of accounting. For
example, include the purchase price of inventory bought and donated in the same year in
the cost of goods sold for that year.
Determining
Fair Market Value
This section discusses general guidelines for determining the fair
market value of various types of donated property. Publication 561 contains a more
complete discussion.
Fair market value is the price at which property would change hands between a willing
buyer and a willing seller, neither having to buy or sell, and both having reasonable
knowledge of all the relevant facts.
Used clothing. 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 or thrift shops.
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. 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, formulas
(such as using a percentage of the cost to buy a new replacement item) are not acceptable
in determining value.
You should support your valuation with photographs, canceled checks, receipts from your
purchase of the items, or other evidence. Magazine or newspaper articles and photographs
that describe the items and statements by the recipients of the items are also useful. Do
not include any of this evidence with your tax return.
If the property is valuable because it is old or unique, see the discussion under Paintings,
Antiques, and Other Objects of Art in Publication 561.
Cars, boats, and aircraft. If you contribute a
car, boat, or aircraft to a charitable organization, you must determine its fair
market value.
Certain commercial firms and trade organizations publish guides, commonly called blue
books, containing complete dealer sale prices or dealer average prices for recent
model years. The guides may be published monthly or seasonally, and for different regions
of the country. These guides also provide estimates for adjusting for unusual equipment,
unusual mileage, and physical condition. The prices are not official and these
publications are not considered an appraisal of any specific donated property. But they do
provide clues for making an appraisal and suggest relative prices for comparison with
current sales and offerings in your area.
These publications are sometimes available from public libraries or from the loan
officer at a bank, credit union, or finance company.
Except for inexpensive small boats, the valuation of boats should be based on an
appraisal by a marine surveyor because the physical condition is critical to the value.
Example. You donate your car to a local high school for use by
students studying automobile repair. Your credit union told you that the blue book
value of the car is $1,600. However, your car needs extensive repairs and, after some
checking, you find that you could sell it for $750. You can deduct $750, the true fair
market value of the car, as a charitable contribution.
Large quantities. If you contribute a large number of the same item,
fair market value is the price at which comparable numbers of the item are being sold.
Example. You purchase 500 bibles for $1,000. The person who
sells them to you says the retail value of these bibles is $3,000. If you contribute the
bibles to a qualified organization, you can claim a deduction only for the price at which
similar numbers of the same bible are currently being sold. Your charitable contribution
is $1,000, unless you can show that similar numbers of that bible were selling at a
different price at the time of the contribution.
Giving Property That
Has Decreased in Value
If you contribute property with a fair market value that is less
than your basis in it, your deduction is limited to its fair market value. You cannot
claim a deduction for the difference between the property's basis and its fair market
value.
Your basis in property is generally
what you paid for it. If you need more information about basis, get Publication
551, Basis of Assets. You may want to get Publication 551 if you contribute
property that you:
- Received as a gift or inheritance,
- Used in a trade, business, or activity conducted for profit, or
- Claimed a casualty loss deduction for.
Common examples of property that decreases in value include clothing, furniture,
appliances, and cars.
Giving Property That
Has Increased in Value
If you contribute property with a fair market value that is more
than your basis in it, you may have to reduce the fair market value by the
amount of appreciation (increase in value) when you figure your deduction.
Your basis in property is generally what you paid for it. If you need more information
about basis, get Publication 551.
Different rules apply to figuring your deduction, depending on whether the property is:
- Ordinary income property, or
- Capital gain property.
Ordinary Income Property
Property is ordinary income property if its sale at fair market
value on the date it was contributed would have resulted in ordinary income or in
short-term capital gain. Examples of ordinary income property are inventory, works of art
created by the donor, manuscripts prepared by the donor, and capital assets (defined
later, under Capital Gain Property) held 1 year or less.
Property used in a trade or business. Property used in a
trade or business is considered ordinary income property to the extent of any gain that
would have been treated as ordinary income because of depreciation had the property been
sold at its fair market value at the time of contribution. See chapter 3 of Publication
544, Sales and Other Dispositions of Assets, for the kinds of property to which
this rule applies.
Amount of deduction. The amount you can deduct for a contribution of
ordinary income property is its fair market value less the amount that
would be ordinary income or short-term capital gain if you sold the property for its fair
market value. Generally, this rule limits the deduction to your basis in the property.
Example. You donate stock that you held for 5 months to your
church. The fair market value of the stock on the day you donate it is $1,000, but you
paid only $800 (your basis). Because the $200 of appreciation would be short-term capital
gain if you sold the stock, your deduction is limited to $800 (fair market value less the
appreciation).
Exception. Do not reduce your charitable contribution if
you include the ordinary or capital gain income in your gross income in the same year as
the contribution. See Ordinary or capital gain income included in gross income under
Capital Gain Property, next, if you need more information.
Capital Gain Property
Property is capital gain property if its sale at fair market value
on the date of the contribution would have resulted in long-term capital gain. Capital
gain property includes capital assets held more than 1 year.
Capital assets. Capital assets include most items of property that
you own and use for personal purposes or investment. Examples of capital assets are
stocks, bonds, jewelry, coin or stamp collections, and cars or furniture used for personal
purposes.
For purposes of figuring your charitable contribution, capital assets also include
certain real property and depreciable property used in your trade or business and,
generally, held more than 1 year. (You may have to treat this property as partly ordinary
income property and partly capital gain property.)
Real property. Real property is land and generally anything
that is built on, growing on, or attached to land.
Depreciable property. Depreciable property is property
used in business or held for the production of income and for which a depreciation
deduction is allowed.
For more information about what is a capital asset, see chapter 2 of Publication 544.
Amount of deduction - general rule. When figuring your deduction for
a gift of capital gain property, you usually can use the fair market value of
the gift.
Exceptions. However, in certain situations, you must reduce
the fair market value by any amount that would have been long-term capital gain
if you had sold the property for its fair market value. Generally, this means reducing the
fair market value to the property's cost or other basis. You must do this if:
- The property (other than qualified appreciated stock) is contributed to certain private
nonoperating foundations,
- The contributed property is tangible personal property that is put to an unrelated use
by the charity, or
- You choose the 50% limit instead of the 30% limit, discussed later.
Contributions to private nonoperating foundations. The
reduced deduction applies to contributions to all private nonoperating foundations other
than those qualifying for the 50% limit, discussed later.
However, the reduced deduction does not apply to contributions of qualified appreciated
stock. Qualified appreciated stock is any stock in a corporation that is capital gain
property and for which market quotations are readily available on an established
securities market on the day of the contribution. But stock in a corporation does not
count as qualified appreciated stock to the extent you and your family contributed more
than 10% of the value of all the outstanding stock in the corporation.
Contributions of tangible personal property. The term
tangible personal property means any property, other than land or buildings, that can be
seen or touched. It includes furniture, books, jewelry, paintings, and cars.
The term unrelated use means a use
that is unrelated to the exempt purpose or function of the charitable organization.
For a governmental unit, it means the use of the contributed property for other than
exclusively public purposes.
Example. If a painting contributed to an educational institution
is used by that organization for educational purposes by being placed in its library for
display and study by art students, the use is not an unrelated use. But if the painting is
sold and the proceeds are used by the organization for educational purposes, the use is an
unrelated use.
Ordinary or capital gain income included in gross income. You do
not reduce your charitable contribution if you include the ordinary or capital gain income
in your gross income in the same year as the contribution. This may happen when you
transfer installment or discount obligations or when you assign income to a charitable
organization. If you contribute an obligation received in a sale of property that is
reported under the installment method, see Publication 537, Installment Sales.
Example. You donate an installment note to a qualified
organization. The note has a fair market value of $10,000 and a basis to you of $7,000. As
a result of the donation, you have a short-term capital gain of $3,000 ($10,000 - $7,000),
which you include in your income for the year. Your charitable contribution is $10,000.
Bargain Sales
A bargain sale of property to a qualified organization (a sale or
exchange for less than the property's fair market value) is partly a charitable
contribution and partly a sale or exchange.
Part that is a sale or exchange. The part of the bargain sale that
is a sale or exchange may result in a taxable gain. For more information on determining
the amount of any taxable gain, see Bargain sales to charity in chapter 1 of
Publication 544.
Part that is a charitable contribution. Figure the amount of your
charitable contribution in three steps.
Step 1. Subtract the amount you received for the property
from the property's fair market value at the time of sale. This gives you the fair market
value of the contributed part.
Step 2. Find the adjusted basis of the contributed part. It
equals: Adjusted basis of entire property x fair market value of contributed part ÷ fair
market value of entire property
Step 3. Determine whether the amount of your charitable
contribution is the fair market value of the contributed part (which you found in Step
1) or the adjusted basis of the contributed part (which you found in Step 2).
Generally, if the property sold was capital gain property, your charitable contribution is
the fair market value of the contributed part. If it was ordinary income property, your
charitable contribution is the adjusted basis of the contributed part. See the ordinary
income property and capital gain property rules (discussed earlier) for more information.
Example. You sell ordinary income property with a fair market
value of $10,000 to a church for $2,000. Your basis is $4,000 and your adjusted gross
income is $20,000. You make no other contributions during the year. The fair market value
of the contributed part of the property is $8,000 ($10,000 - $2,000). The adjusted basis
of the contributed part is $3,200 ($4,000 × [$8,000 ÷ $10,000]).
Because the property is ordinary income property, your charitable contribution deduction
is limited to the adjusted basis of the contributed part. You can deduct $3,200.
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