What You Need to Know about Charitable Contributions and Tax Deductions
If you are retiring and moving to a much smaller space, now may be the time to donate that cookie jar collection.
This is the time of year when those of a certain age may come to the painful realization that a beloved collection they’ve meticulously amassed over the last 40 years isn’t going to be loved so much by their heirs. Maybe it’s a library of old books, a room full of Indian artifacts or shelves of crystal geodes. The collector might be moving to a smaller home with no place to display and doesn’t want the hassle of selling single pieces on eBay or Craig’s List. A lot of (fun) effort went into that collection, so it is time to donate it to an alma mater or local museum where others can enjoy it too.
If you are thinking about donating your treasures, and you also want to take a tax deduction, here are a few guidelines to remember:
- Your donation is probably not going to be valued as high as you think. The IRS requires that donated goods must be assigned fair market value. That means (for the most part) the value you would receive if you were to sell them yourself. It is probably not what you paid for them and certainly not what antique dealers are asking for them (because those prices include markups). Sometimes collections appreciate, but most have lost value over time due to the growth of Internet sales;
The fair market value of a common reading library is often less than the original purchasing price.
- If you think your collection might be valued at more than $5,000, the IRS requires an appraisal by an accredited or certified appraiser belonging to a recognized professional appraisal organization. You cannot assign the value. The institution that accepts your donation cannot assign the value. This is the biggest mistake that donors make and they usually don’t discover it until their tax accountants are processing their returns;
- You must donate your collection within 60 days of the appraisal. If that is not possible, the appraisal will need to be updated;
- The appraiser and the receiving organization must both sign your tax return, indicating the value assigned and the quantity received;
- This is pretty important: you need to donate your collection to a qualified charitable organization that has similar interests. You can donate your books to a library or your train collection to a railroad museum, but you can’t donate your Coca-Cola memorabilia to your church (well, you can, but not if you want to take a tax deduction too);
If you decide to donate you glass eyeball collection for a tax deduction, you’ll need to find a medical museum that wants them. Charitable organizations need a legitimate reason to accept your gift.
Unfortunately, this is also the time of year when people who need tax relief try to come up with ideas. Believe it or not, the IRS is pretty darn smart when it comes to charitable contributions. The objective of the deduction is to provide an incentive for ongoing philanthropy, so there are a lot of rules in place to prevent fraud. Here are some examples:
- If you just want to donate used stuff to the local thrift store, you can use value guidelines published by Goodwill, the Salvation Army, TurboTax and others. They provide an acceptable range for items as varied as blouses, microwaves, CDs and ice skates. However, the IRS requires a qualified appraisal if you donate household goods in poor condition and want to claim more than $500. That includes broken appliances, stained clothing, beat-up luggage and board games with missing parts. You don’t get a free pass to unload junk;
Don’t expect to deduct much from donating a broken TV.
- You can’t game the system. Let’s say you are an amateur artist. You’re pretty good and you’ve sold several paintings at local craft fairs for up to $1,000. You decide to spend a few hours painting a dog portrait and then donate it to the neighborhood animal rescue shelter so they can display it in their lobby. Nice try, but you can’t deduct $1,000. And you can’t even deduct your labor. You can only deduct the expenses of the art supplies you used to make the painting. The IRS is totally on top of this;
The IRS won’t let you deduct $1,000 for a painting you made yourself.
- Your generosity is very welcome, but anything you receive in return must be accounted for. You bought expensive tickets to a charity ball, which included dinner and wine and mixing with celebrities. During a bidding frenzy at the fund-raising auction, you purchased an autographed guitar for far more than the fair market value. It was a much-appreciated gesture and the charity benefited greatly. Yes, you can take a deduction for this, but you must also subtract the base value assigned to the dinner, drinks and guitar. The charitable organization will provide these numbers. And remember, if you want to sell that guitar later, it’s not worth what you paid for it (but thank you).
Charity auctions often offer signed memorabilia at their events. You can deduct anything you pay over fair market value. It’s all for a good cause.
Donations come from the heart. If you happen to be able to share a rare collection with others or take a small tax deduction in return, then it’s just all the better for everyone.
Liz Holderman is a Worthologist who appraises books and collectibles.
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