Charitable giving is a great way to help organizations and causes near and dear to your heart and have the added benefit of being eligible for a tax deduction. While this is a great way to give to a good cause and lower your tax bill, there are several considerations to be aware of. The IRS has recently issued updated regulations concerning what substantiation is needed to pass muster and avoid having a contribution be disallowed.
Here are some of the most common types of contributions as well as the rules pertaining to each:
- Gifts less than $250 – Donors should have a receipt or reliable records, such as a bank statement or gift date and description.
- Noncash gifts $250 to $500 – Donors need a contemporaneous written acknowledgement from the charity and a description of the gifted items.
- Noncash gifts $500 to $5,000 – With a gift this size, donors must have a contemporaneous written acknowledgement and complete Section A of IRS Form 8283 “Noncash Charitable Contributions.” The IRS rejected a commentator’s suggestion that a correctly completed Form 8283 should be sufficient without a contemporaneous written acknowledgement. Both are required for gifts at this level.
- Noncash gifts $5,000 to $500,000 – Both the contemporaneous written acknowledgement and Sections A and B of IRS Form 8283 are required. The reported gift value must be based on an appraisal by a qualified appraiser.
- Noncash gifts $500,000+ – For these larger gifts, donors must include the contemporaneous written acknowledgement, complete Sections A and B of IRS Form 8283 and attach the qualified appraisal to the return. There is no reasonable cause exception for the specific qualified appraisal requirements. All cases will be determined by the Tax Court on a facts and circumstances basis.
- Clothing and household goods – These gifts must be in “good used condition” to qualify for a deduction. There is a limited exception. If the gift value is over $500 and there is a qualified appraisal, the clothing or household goods may be less than “good used condition.”
- Clothing and household goods $5,000+ – Donors must have a contemporaneous written acknowledgement and obtain an appraisal by a qualified appraiser. IRS Form 8283 Sections A and B must be properly completed.
All appraisers must be qualified by education and experience to value the type of gift in the appraisal. The education and experience requirements apply on January 1, 2019 and thereafter. A qualified appraisal must follow the Uniform Standards of Professional Appraisal Practice (USPAP).
If you have questions about the charitable giving rules, contact your Henry+Horne tax advisor.
Ron Greenfield, CPA