It's no secret that charitable donations can help reduce your tax bill.
But if you give something other than the typical cash, check or credit card donation, you'll have some added tax considerations. In recent years, the IRS has toughened many of its deduction rules, especially when it comes to noncash gifts.
You'll encounter these stricter statutes if you donate household goods, clothing or a vehicle.
A philanthropic option for older donors requires careful coordination to ensure neither giver nor recipient runs afoul of the IRS.
And even taxpayers who still give the always welcome gift of money now need to keep better records.
'Good' household goodsEach year, thousands of folks clear out closets to make room for new apparel. Much of this old clothing ends up going to charitable organizations.
But too many people were turning the ostensible benevolent act into an ad hoc dumping of items that more appropriately belonged in the trash. Under a provision of the Pension Protection Act, which became law Aug. 17, 2006, any clothing or household goods (defined by the IRS as furniture, furnishings, electronics, appliances and linens) you donate after that date must be in good or better condition.
If the IRS determines the items were of "minimal monetary value," a tax examiner can now deny your deductions. That means those toeless socks are out, along with that sweater so threadbare you can literally see through it. The same goes for the old television that doesn't work or the chair that has a broken seat.
When you file, you don't have to document how you came up with the deduction amount. But if the IRS ever asks, photos of the donated goods should help bolster your claim that they were worth giving. And it never hurts to keep a detailed list of exactly what you gave (this work sheet will help), along with the receipts you got from the organizations.
Some items escape this good-or-better restriction, specifically any item that alone is worth $500 or more.
This could be, for example, a battered antique, such as a tattered first edition of a book or a Civil War uniform with moth or bullet holes. In these cases, if a qualified appraiser says it's worth more than $500, you can claim the item's full value even though it is in less-than-perfect shape. Just be sure to submit the appraisal with your return.
Donated auto deductions no longer automaticThe groundwork for the household goods limitation was laid in 2005 when the IRS instituted new rules on donated cars.
That year, vehicle donors lost the ability to automatically write off a donated auto's generally accepted value, as determined by Kelley Blue Book or similar valuation services.
Now you must take into consideration what the charity does with your donated vehicle. If the organization uses it to conduct its primary services, such as delivering meals to shut-ins, then you'll be able to claim its fair market value.
But if, as is often the case, the group sells your donated vehicle, you might not be able to claim its full market value. In this case, even if an auto you donate is worth $1,000, if it's subsequently sold by the charity for just $800, then that lower amount is all you're able to deduct.