Documentation Requirements for Non-Cash Contributions

Your Guide to State, Local, Federal, Estate + International Taxation

Many taxpayers donate unused clothing or household items to Goodwill or other charitable organizations each year, and probably view it as a win-win situation. The donations go to a good cause, the taxpayer is able to remove some clutter from their house, and last but certainly not least, gets to deduct the donation on their tax return. Sounds like a pretty great transaction, right? Well if you aren’t careful, that tax deduction part could be trickier than you think.

Recent court cases suggest that the IRS is beginning to crack down on taxpayers claiming deductions for non-cash contributions without the proper documentation. Charitable organizations commonly provide donors with a blank slip upon drop-off, or a doorknob hanger if the items are picked up from the taxpayer’s residence. Unfortunately, more often than not these receipts are not sufficient for purposes of the tax deduction.

The degrees of documentation required vary based on the value of the property donated. For property valued at $250 or less, a receipt that contains the name of the charitable organization, date and location of the donation, and a basic description of the property donated will suffice. The same rules apply for property valued between $250 and $500, with the additional requirement that the receipt state whether any goods or services were provided to the taxpayer in exchange for the donation, and if so, a good-faith estimate of their value. These requirements are known as “contemporaneous written acknowledgement.”

If you are making non-cash donations in excess of $500, the rules become even more stringent. Form 8283 must be filed with your tax return, which requires even more information about the contribution. Additional requirements include the fair market value of the item at the time of donation, how the fair market value was determined, date the property was acquired by the donor, how the property was acquired by the donor, and the original cost of the property.

Thinking of donating property valued at $5,000 or above? Be prepared to meet all of the previous requirements, as well as obtain a professional appraisal of the property.

So next time you donate some old clothes, keep these rules in mind to make sure you receive the appropriate tax deduction! For all the details check out IRS Publication 526, or simply give your tax adviser a call.

By Austin Bradley, CPA