With only a few days remaining in calendar year 2019, for those packing up their cars full of used clothing and household items to take to the local charitable thrift store for a last minute, year-end, itemized charitable contribution tax deduction, a quick review of the charitable contribution deduction rules is in order:
First, the tax laws (Internal Revenue Code Section 170, to be specific) allow a deduction for any contribution made to a charitable organization during the tax year (for individuals, the calendar year). The deduction, however, is only allowed if it is substantiated or proven in accordance with the rules and regulations of the I.R.S. For an individual no charitable deduction is allowed for any contribution of clothing or a household item unless the clothing or household item is in good used condition or better at the time of the contribution (thus, no deduction for worn out clothing, malfunctioning electronic devices and unusable appliances and furniture).
Second, for all donations of property, including clothing and household items, I.R.S. advises taxpayers to get a receipt from the charity, if possible, that includes the name of the charity, date of the contribution, and a reasonably detailed description of the donated property (a statement that three bags of men's clothing were donated doesn't meet this test). If a donation is left at a charity's unattended drop site, then a written record of the donation that includes the above information plus the property's fair market value at the time of the donation and the method used to determine that value will suffice.
Third, for all contributions (cash or property) of $250 or more the taxpayer must obtain a "contemporaneous written acknowledgement" ("Receipt") of the gift from the charity. The Receipt, among other things, must contain: (i) a description of the donated item, (ii) a statement that no goods or services were furnished or given by the charity for all or part of the gift, and (iii) it must be provided to the donor no later than the first to occur of (x) the filing of the tax return or (y) extended due date of the return. No deduction will be allowed if the requirements of the "receipt rule" are not met.
Fourth, additional substantiation requirements are imposed for contributions of property with a claimed value exceeding $500. They are even more arduous for contributions of property with a claimed value exceeding $5,000. Furthermore, "similar items of property" must be aggregated in determining whether those thresholds are met. The term "similar items of property" means "property of the same generic category or type," such as clothing, jewelry, furniture, electronic equipment, household appliances, toys, or kitchenware. Thus, for example, you cannot take ten "slightly worn" suits and designer dresses to Goodwill, value each item at less than $250 and avoid the more stringent substantiation requirements imposed.
- For contributions of property valued in excess of $500, the taxpayer must include with his or her return a description of such property and maintain records establishing how the donor acquired the property (e.g., by purchase, gift, or inheritance), its approximate acquisition date and the cost or adjusted basis of the property.
- Generally, for contributions of property or similar items of property valued in excess of $5,000, the taxpayer must obtain a qualified appraisal of such property. The taxpayer must also attach a fully completed "appraisal summary" to his or her return.
- A properly completed IRS Form 8283 can satisfy these requirements.
These rules were made painfully clear to the taxpayers in the case of Mark R. Ohde v. Commissioner, T.C. Memo 2017, who, in 2011 contributed more than 20,000 clothing, media, furniture and other household items to Goodwill with a total claimed value of $146,611 and were allowed a charitable contribution deduction of $250 by the Tax Court.
Pack-up your cars with your good conditioned used clothing, furniture, electronics, games, etc., to benefit others who are not so fortunate, and let altruism and the Internal Revenue Code be your guiding principles.
Best wishes for the New Year!