IRS Recordkeeping Rules for Property Donations

The records you must keep will depend on whether you value the donated property at $5,000 or more.

There is nothing wrong with making property donations to charities (although most prefer cash). However, if you want to take a charitable deduction for a property donation, you are required to take steps to substantiate the property’s value and maintain proper records. The more you claim donated property is worth, the more substantiation and records you need.

A good example of what not to do is provided by a taxpayer who donated a veritable mountain of stuff to the American Veterans National Service Foundation (AMVETS), a bona fide charity. The donations included seven sofas, four televisions, five bedroom sets, six mattresses, a kitchen set, a dining room set, a china cabinet, three rugs, 180 shirts, 63 pairs of slacks, 153 pairs of jeans, 173 pairs of shoes, 51 dresses, 35 sweaters, nine overcoats, seven suits, a couple of computers, a printer, and a copier. On his tax return, the donor grouped the items by category type and came up with a total amount donated for the year for each category as required by the IRS. In his case, he valued his total household furniture donations at $11,730, the clothing donations at $14,485, and the electronic equipment donations at $1,550.

Unfortunately, this donor was audited by the IRS a few years later and was denied his entire charitable deduction because he failed to follow the strict property donation substantiation rules. He appealed to the Tax Court and lost. (Smith v. Comm’r, T.C. Memo. 2014-203.)

Rules for Property Donations Over $5,000

For property donations over $5,000, there are particularly onerous IRS substantiation rules that must be followed. These require a written and signed acknowledgment from the charity, an appraisal of the property’s value from a qualified appraiser, and then donors must attach a summary of the appraisal to their tax return.

The acknowledgment must (1) include a description (but not value) of the property; (2) state whether the charity provided any goods or services in exchange for the gift; and (3) if the charity did provide goods or services, include a description and good faith estimate of their value.

In the case described above, the taxpayer's household furniture and clothing donations each totaled more than $5,000 and were therefore subject to the more onerous IRS rules. He attempted to comply with the acknowledgement requirement for the donations, but didn’t go about it the right way. He obtained several blank “tax receipts” that had been signed by AMVETS representatives that he later filled out himself. Because these forms were signed before the property was donated, they likely didn’t constitute an “acknowledgment” as required by the IRS. Moreover, they didn’t contain any description of the property contributed. Instead, the donor later created a spreadsheet listing the donated items.

Even worse, no appraisal of the value of the donated property was ever done. Instead, the donor said he relied on the values listed in the Salvation Army's website that lists estimated “low” and “high” values for used property. These were not acceptable to the IRS or Tax Court. Nor did the donor attach an appraisal summary to his tax return, since he never got one.

Rules for Property Donations of $500 to $5,000

For the electronic equipment valued at $1,550, no appraisal was required. But, the donor was denied a deduction for these items as well because he failed to follow the rules for donations of property valued at $500 to $5,000. First, a proper acknowledgement from the charity is required, which was never obtained. In addition, when you donate the property, you must have “reliable written records” for each donated item. These records must include: (1) the approximate date the property was acquired and the manner of its acquisition; (2) a description of the property in detail reasonable under the circumstances; (3) the cost or other basis of the property; (4) the fair market value of the property at the time it was contributed; and (5) the method used in determining its fair market value. The donor had no such records for the electronic eqiupment he donated.

Moreover, deductions for contributions of clothing or household items are not allowed unless such items are “in good used condition or better.” Household items includes furniture, furnishings, electronics, appliances, linens, and similar items. The donor presented no evidence that the property he donated was in good used condition or better. He did not take photographs of any of the items he donated, and he introduced no other evidence to establish their condition.

Similar Items Must Be Grouped Together For Donation Thresholds

You can’t get around the appraisal requirement for property donations over $5,000 by making numerous separate donations of property you value at less than $5,000. When you determine whether a property donation is worth more than $5,000, you must combine all of your deductions for all similar items donated to all nonprofits during the year. "Similar items” means property of the same generic category or type (whether or not donated to the same nonprofit)--for example: stamp and coin collections, lithographs, paintings, photographs, books, nonpublicly traded stock, land, buildings, clothing, jewelry, furniture, electronic equipment, household appliances, toys, everyday kitchenware, china, crystal, or silver. For more information on appraisals, you can refer to IRS Publication 561,Determining the Value of Donated Property, and to IRS Revenue Procedure 96-15. Both can be obtained from the IRS website (www.irs.gov).

If you have lots of stuff you want to donate and you don’t want to have to get an appraisal, you should keep the total value of the items you donate during the year in each category below $5,000. For example, you could donate $4,999 worth of furniture and other household items in one year and another $4,999 in the following year without the need for an appraisal. But you still would have to obtain proper acknowledgment from the charity and keep the required documentation for donations of between $500 to $5,000.

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