If you donate property to a nonprofit such as clothing, electronics, books, or furniture, you need to determine how much it is worth when you donate it.
The basic rule is that you may deduct no more than the property’s “fair market value” at the time of the donation. But fair market value can be a tricky thing. For IRS purposes, it means the amount that a “willing buyer would pay and a willing seller would accept for the property when neither party is compelled to buy or sell, and both parties have a reasonable knowledge of the relevant facts.” In other words, it’s a fair price—not too high and not too low.
For property donations of under $5,000, you can determine the fair market value yourself and no appraisal is required. The IRS recommends that you consider all relevant factors, including:
- the item’s cost or selling price
- sales of comparable items
- the item’s replacement cost, and
- an expert opinion.
Example: Joe donates a one-year-old Mac portable computer to his church. He paid $1,500 for it new, but he knows it’s worth much less than that because of its age. He looks at sales of a comparable computer on eBay and finds that the average price they are going for is $500. He decides this is its fair market value for tax purposes.
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This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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