By James Connolly, CPA, Partner
Most of us support our local Goodwill by donating used clothing, furniture and other household items. In fact, it’s a tradition at my house at year end to go through the house and make that last run to avoid waiting until next year for the deduction.
There is a recent case (Ohde v. Commissioner, T.C. Memo 2017-137) where the taxpayers claimed deductions for Goodwill donations of $145,250! For some reason, that received the attention of the IRS, which sought to disallow the deductions. Unfortunately, the court sided with the Service, only allowing a $250 deduction. Ouch!
While most of us will never donate anywhere near that much to Goodwill, this ruling provides a good opportunity to review the basic rules for noncash donations to help ensure we avoid the fate of the Ohdes.
There are three basic levels: $1 – $500, $501 – $5,000, and over $5,000. No matter the level, the donated items must be in ‘good’ condition or better, and the receipts must be contemporaneous (obtained by the time your return is filed). Here are some additional details to keep in mind when making noncash contributions:
- $1 – $500: You should obtain a receipt with the name and location of the organization. It should be dated and should explicitly state that “no goods or services were received in exchange for the donation.” The property should be described in some level of detail (i.e. 10 dress shirts at $4 each and 10 kids’ shoes at $2 each instead of ‘clothing’ for $60). You should document the basis for your assigned values.
- $501 – $5,000: The same basic rules apply as the first category except that once you exceed $500 in a particular category you must report all noncash contributions on Form 8283.
- Over $5,000: You must obtain a qualified appraisal when any category of noncash item exceeds $5,000.
If you donate a car or boat, many of the above rules still apply. If the donation exceeds $500, your deduction depends on whether the recipient organization immediately sells the vehicle (in which case your deduction is limited to the sales proceeds) or retains it or gives it to a needy person (in which case your deduction would be the estimated fair market value). In either case, you will need to obtain Form 1098-C from the recipient.
For publicly traded securities, you must provide the company or fund name and the number of shares or units. You do not need an appraisal, and you are not required to provide your cost basis.
As always with tax deductions, the most important thing is to obtain and retain proper detailed documentation of the deductible items. Without proper documentation, your $145,250 of deductions can quickly be reduced to $250.
James T. Connolly Tax Partner, CPA
James is a tax partner at our firm with over 25 years of experience in public and private accounting. With a background in auditing and private accounting, James has spent the last 19 years in the tax world working with small businesses and individuals to meet their tax compliance and consulting needs. While he […]