Substantiation of Non-cash Charitable Donations
Many taxpayers donate non-cash items to qualified charities. Common items include used clothes, household goods, jewelry, cars, etc. The IRS requires proof of the donation to claim the deduction. Most often, this can be satisfied with a receipt from the qualified charity receiving the donation. In addition to proving the donation occurred, you must establish the value of the donation.
Generally, no indication of value will be provided with the receipt from the charity. This can make determination of value difficult. The IRS most often uses "thrift shop value" to establish a value for used items. This means the value is determined based on what it might sell for in a thrift shop. Rarely would a used household item or used clothing be worth more than a small fraction of what you paid for it.
Merely assigning a value by writing it on a donation receipt is not sufficient evidence of value. If you have significant non-cash donations, compile a list with the value of each item indicated. For any unique items, take photos of the items donated and document your method of determining value. If more than $500 in value is claimed for non-cash donations, the IRS requires you to disclose the item, the value, its purchase price, and the recipient. Remember, the recipient must be a qualified charity for the donation to be deductible.
In most cases if the amount claimed is over $5,000, the IRS requires a qualified appraisal. This means a subject matter expert must assign a value to the item donated. This is typically most common for jewelry, art, closely held business interests, or real property donated to a qualified charity. An indication of value by the charity will not be considered sufficient. The IRS devotes significant audit resources to the investigation of deductions claimed for large non-cash donations.
Remember!
The IRS publishes guidelines and updates for charitable deductions on their website, irs.gov.
Without proper substantiation of value, the IRS may deny a deduction even if you can prove the item was donated.
You should consult your tax accountant before deciding to donate an item of material value to a charity.
