At different times in our lives, we may consider making large donations of personal effects to charity. In recent tax seasons, we’ve noticed two issues that have reduced our clients’ ability to benefit from their deductions. We’d like to alert you to the issues we’ve encountered to help you avoid them in the future.
Third-Party Appraisal Requirement. Many individuals may be unaware that a third-party appraisal is required when noncash donations exceed a $5,000 threshold. This threshold is met when contributions of any one kind of property (say, furniture or household appliances) exceed $5,000, even when donated in smaller increments throughout the year. In those cases, appraisals must be obtained.
For example, donating $3,000 of furniture to charity A and $3,000 of furniture to charity B meets the $5,000 threshold for an appraisal because both items are furniture. Conversely, a $3,000 donation of books and a $3,000 donation of household appliances doesn’t meet the threshold because they’re different types of property.
Appraisals have to be conducted by a qualified, third-party appraiser who is not related to the charity. Advance planning is often required since appraisals are difficult to arrange after the items have been given away.
Understanding General Documentation Requirements. Irrespective of the appraisal requirement, clients are often not aware of the recordkeeping rules that apply to most noncash donations. These include descriptions of the items given, the fair market value, and when and how the items were originally acquired.
We have prepared the below summary that covers most of the key requirements for documenting noncash donations.
Appraisal and Documentation Requirements for Noncash Charities
We also recommend that you contact us when you’re planning to make significant contributions so we can discuss the rules with you. Donation deductions can make a meaningful difference in your tax liability, and we’d like to help you plan and make the most of your contribution.