Goods that are donated must truly be good

Posted 3/28/16

Everybody wins when you rid your house of unwanted items, donate them to charity and then deduct the value on your income tax return. But the Internal Revenue Service wants to make sure you don’t benefit unfairly.

That’s why the IRS has some …

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Goods that are donated must truly be good

Posted

Everybody wins when you rid your house of unwanted items, donate them to charity and then deduct the value on your income tax return. But the Internal Revenue Service wants to make sure you don’t benefit unfairly.

That’s why the IRS has some requirements in connection with the charitable contribution of household items (linens, appliances, furniture, kitchenware, etc.), clothing, automobiles and cash. Specifically, for example, those “hard” goods must be in good condition. Of course, “good” is relative. Who decides? The IRS! That’s why it’s a good idea to take photos of the items before you ship them to the charity. Keep the photos as long as you think the IRS might want to see them.

There are a few notable exceptions to the “good condition” requirement, including food, paintings, antiques, other art objects, jewelry and gems, or collectibles. Also, if you have a qualified, documented appraisal of a donated item on a deduction of more than $500, go ahead and make the claim without fear of IRS objection, even if the items are not in “good” condition. And remember, if the items in good condition (and the total value is less than $5,000), there is no need for an appraisal.

Most of these rules went into effect in 2006, when the IRS seriously emphasized the need for documentation in connection with charitable donations. So any cash donation claimed on a tax return requires a corresponding bank record or detailed written communication from the charity. You say you made a written note of the donation? Sorry, not enough these days.

When the cash donation exceeds $250, the taxpayer needs to keep a written acknowledgement from the charity that is provided in a timely manner — no later than the date the taxpayer files the return for the year the contribution is made. Also, the written acknowledgment must state whether the charity provides any goods or services in consideration for the contribution. For instance, if the $250 went toward a fundraising event in which the taxpayer played some golf, attended a dinner and took home a souvenir bottle of champagne, the full $250 won’t be deductible.

There is another level of charitable contribution that causes another IRS regulation to kick in, and if you reach this one, good for you: For claimed contributions of any kind over $5,000, the taxpayer must obtain a qualified appraisal. The charity thanks you, the IRS thanks you, and your accountant thanks you.

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