Donating your used clothes, household items, or even vehicles is a great way to declutter. But there are special rules when it comes to deducting these items on your tax returns. Here’s how to value non-cash donations at tax time.
Clutter can be overwhelming. It’s easy to let outgrown and unused things pile up over the years, especially if you’re not sure what to do with them. One way to clean out your closets, give back, and save money on your taxes is to donate non-cash items to charity.
Whether you’re cleaning out your kids’ old toys or giving college books to the Salvation Army, the non-cash items you donate have a value. When you itemize your taxes, you may be able to write off the value of those items, ultimately saving you some money.
Here’s everything you need to know about deducting non-cash donations to charity.
First, you should know that in order to deduct the value of donations on your taxes, you need to itemize your taxes. There are two ways to take deductions on your taxes: the standard deduction and itemized deductions.
The standard deduction is an annual, set amount that every taxpayer is entitled to take on his or her tax return. When you itemize, though, you can include a variety of deductible expenses, including real estate taxes, mortgage and student loan interest, cash and non-cash contributions to charities, job-related expenses, union dues, and more.
(Note: Some of this will change with the recently-enacted tax law. The government has increased the standard deduction and reduced some of what you can claim as an itemized deduction. Check out this article for a discussion of the deduction changes and what they may mean for you.)
Whether it’s better to itemize or take the standard deduction depends on your tax situation. But the bottom line is that you should take whichever option gives you the bigger write-off.
When you itemize, you’ll do so using Form 1040 Schedule A. It includes slots for all of the different items that you can write off on your taxes as a deduction.
Unless you know for sure that you won’t be able to itemize your taxes, you should do the math to decide which deduction will work best for you. If you use a tax-preparation software or hire a reputable tax-preparer, they’ll tell you which option will work best for you.
If it’s to your advantage to itemize your deductions, though, you should be as specific as you can. And make sure you don’t forget anything. Even a few old pairs of jeans from your kids’ closet could save you some money on your taxes! You’ll save between 15 and 35 cents for every dollar you can deduct on your taxes, depending on your tax bracket.
Cash vs. Non-Cash Donations
If you give cash donations to a charity or church, the nonprofit should send you a receipt at the end of the year detailing your giving. Some are better about this than others, though. So be sure to keep track of all your cash donations.
These are easy to include when itemizing your taxes. Simply total up how much you’ve given in the tax year, and put it in the appropriate Schedule A line. If you donated or tithed by check, record-keeping for the year is even simpler. Just be sure to save those receipts or check records in case the IRS ever questions your deduction.
Valuing Non-Cash Donations
Non-cash donations, on the other hand, can get a little squirrely. Donations of items like clothing, cars, or household goods are assessed at the “fair market value,” or FMV. This is about how much you could get if you sold the items directly to a willing seller.
However, as with all things IRS-related, you need to be able to back up your claims about how much items were worth at the time of donation. This means that you need to keep good records about any non-cash items you may have donated.
Many times, when you donate items to a well-known nonprofit like Goodwill or the Salvation Army, they’ll offer to give you a receipt for your items. However, these receipts are usually blank. You’ll have to decide how to value the items. It’s best to include as many details as possible about the items you’ve donated. This should include the number of items and descriptions of the items’ conditions. This will help you avoid FMV issues.
Then, you can use a handy online tool like the Salvation Army’s Donation Value Guide to see how much your items might be worth. The Salvation Army’s list isn’t all-inclusive. And gives you a low and high resale value for a variety of generic items. It’s up to you to decide how much your items are ultimately worth and to value them accordingly for tax purposes.
You can actually deduct quite a bit for some items, including clothing and kids’ toys. However, it’s best to be honest when it comes to your valuations, rather than taking the highest value for everything you donate.
Other Information to Record
Besides a description of each item donated and the items’ value, record the name and address of the organization to which you donated the items. You should also include the date and location of the contribution and what resources you used to determine the value of the property.
If, for instance, the nonprofit gave you the resale value of a big-ticket item, cite that in your records. Or if you just got a list of items from the nonprofit and then used the Salvation Army’s Donation Value Guide to value them, record that.
Also, if you received anything in return for your donation, you’ll need to record that, too. This is one place things can get a little confusing.
Say, for instance, that you donate an old vehicle worth $2,000 to a local charity. In return, the charity gives you a pair of tickets to a local concert, worth $100. In this case, you can only claim the difference between the tickets’ value and the value of the vehicle on your taxes, so $1,900.
Total Property Values
If you donate a stack of clothes to Goodwill, chances are you’ll wind up valuing the total donation at less than $250. In this case, you just need the above-noted information to make sure the donation is legitimate. You can put the valuation of the non-cash donation directly into your Schedule A and be done with it.
But if you’re donating property worth more than $250, things get a little trickier.
If you’re donating items valued between $250 and $499, you’ll need to be more detailed with your description. You’ll also need to write down the tax year for which you intend to take the deduction. And you’ll need a statement about whether or not you received anything in return for your donation.
Non-cash donations valued in excess of $500 will need to include information about how you received the property. This includes whether you bought it yourself, inherited it, or whatever the circumstance may be. And you’ll need more detailed information about the actual value of the property. This could include information about when you received the property so the IRS can determine if the valuation is fair.
So, what if you’re donating items that are even more valuable? Say, a car that is worth more than $5,000.
In this case, you’ll need to get an appraisal of the item to include with your tax records. Some charities that accept large non-cash donations like this will help you with the process. Otherwise, you may just need to have an appraisal done on your own, and keep the resulting paperwork with your other tax-related documents.
If you do contribute more than $500 worth of non-cash donations in a tax year, you’ll need to fill out Form 8283. This form requires you to put more information about your non-tax donations together. So, if there’s a chance that you’ll donate $500+ worth of items to charity in a tax year, check out this form. See what it requires, and then keep your records with this specific form in mind.
Changes for 2018
If you’ve read anything about the new tax law, you may be wondering how that could affect your charitable giving in 2018. When it comes to valuing non-cash donations, it won’t have much effect. Except that you may not wind up taking a deduction for your charitable giving at all.
One change the tax law implements is that givers can now donate up to 60 percent of the Adjusted Gross Income in cash, as opposed to the prior 50 percent limit. But that doesn’t have much effect on our current question in this article.
The change that may make a difference, though, is the one that bumps up the standard deduction significantly. Single filers can now take a standard deduction of $12,000, while married people filing jointly will be able to take $24,000. (Remember, this is what you can claim in 2018 on your 2017 taxes!)
This makes it much less likely that you’ll meet the threshold for itemizing your deductions. And if you know for sure based on your itemized deductions that you won’t meet that threshold you don’t really need to value your non-cash donations, anyway. Instead, you can just give away that stuff you don’t need without worrying about receipts. But if you think you might still itemize, be sure to follow the above steps to properly value those donations!
Donating to charity is a great way to give back to your community and get rid of the extra stuff you have lying around. But before you drop off those items at Goodwill or have Salvation Army grab them off your porch, be sure you know what you need for your records. It’s important to be as accurate as possible if you want to successfully claim their value as a tax deduction.