Tax Talk: valuing charitable donations and taxes on sale of land

2 min read

Valuing charitable donations

Dear Tax Talk:
Can you offer any advice about a source to help me value a large amount of personal items donated to our church? I have a list of all the items, but I’m not sure how to value them. Does the Salvation Army or Goodwill offer a list that shows what they suggest as fair market value?

Thanks,
Sue

Dear Sue:

You are entitled to claim the fair market value of the property you donate to your church as a charitable contribution. Based on my experience, the fair market value of most used items of a personal nature (such as household goods, clothing and furniture) is about 25 to 30 percent of the original cost. Take your list of items, and try to assign an original cost to each item. Then multiply the total by 25 to 30 percent or a little more depending on the condition of the items and how aggressive you feel when doing your taxes.

If the claimed value of donated items exceeds $500, you need to complete Form 8283. If you want to go a little further in your search for the fair market value, you may want to look on
eBay to see what others would be willing to pay for your old stuff. Of course, you may end up shopping and blowing your tax-savings.

You also should check out Bankrate’s
printable chart that offers a guide to the value of commonly donated goods.

Taxes on the sale of half a lot

Dear Tax Talk:
I own a home in Houston that sits on the west half of a 100-feet-by-131-feet lot. I want to sell the east half of my lot and reinvest the money in my home (or pay off the mortgage). Are the proceeds from the sale of half of my homestead subject to federal income tax?

Thanks,
Tim

Dear Tim:

You have an interesting question, but there’s not an easy answer. Since you’re only selling vacant land, the Internal Revenue Service would argue that you have not sold your home; therefore, you are not entitled to exclude the gain on the sale. If instead you sold all of the land and the home, you would be entitled to the exclusion of gain on the sale of your home.

If you sold the land and the home for its fair market value to a corporation you owned, you may be entitled to exclude the gain on the sale of the home. I say might, because the IRS has not issued regulations that address this situation. If later that corporation sold the land to someone else, it would not realize a gain since it just purchased the property for its fair market value, presumably the price that the land alone would sell for. After the corporation sells off the other parcel, you can regain title to your home without tax consequence by liquidating the corporation. If you hold it for two more years after the liquidation of the corporation, you would again be entitled to exclude gain on the sale of your principal residence.

Since this sounds too good to be true, the IRS might attack it as a sham transaction. Then again, without regulations to guide you through the transaction, you may fall through a loophole. I’d suggest, if it makes sense because of the potential gain that you would pay tax on, you should consult an accountant or tax attorney.