As well as making cash contributions, supporters of not-for-profit organizations frequently donate tangible property. Not-for-profits are subject to rules and regulations for how to value this property, and are required to provide donors with specific documentation they need to claim these donations.
What is the minimum threshold for substantiating non-cash contributions? Donors must substantiate non-cash property that’s valued at less than $250 with a receipt listing the charity’s name and address, the date the donor made the contribution, and a detailed description of the property. For non-cash property that’s valued between $250 and $500, donors must obtain a contemporaneous written acknowledgement, or CWA.
For non-cash property that’s valued between $500 and $5,000, donors must obtain a CWA and file Section A of IRS Form 8283 with their tax return. And for non-cash property that’s valued at more than $5,000, donors must obtain a CWA, file Section B of Form 8283, and obtain a qualified property appraisal.
How does the IRS define a “qualified appraisal”? A qualified appraisal is performed in accordance with generally accepted appraisal standards by a qualified appraiser. This appraiser must meet certain educational and experience requirements, such as successfully completing coursework and possessing at least two years of relevant experience, as well as earning a recognized appraiser designation from a professional appraiser organization.
See IRS Publication 561 for more details on appraiser requirements. The appraiser must sign and date the appraisal no sooner than 60 days before the donor made the contribution and no later than the extended due date of the donor’s tax return.
Should an organization help donors set a value for donated tangible property? Sometimes donors ask charitable organizations to help them value property they donate to the organization. However, not-for-profit organizations are not considered qualified appraisers. A not-for-profit should deny these requests and instead thank the supporter for the donation, explaining that it’s not qualified to help them value their contribution, and the not-for-profits’ opinion would be non-binding.
Are donations of vacation time (such as at a cabin or condo) deductible for donors? For a supporter who donates a week’s stay at a mountain cabin, beach condo, or timeshare, the value of this time is not deductible on the their tax return. According to the IRS, deductions for the partial use of a vacation property are prohibited. The donor must relinquish the property in its entirety for the donation to be tax-deductible.
How should donors substantiate contributions of high-value property, such as artwork and jewelry? Special rules apply to substantiating these kinds of property donations. If a piece of artwork is worth more than $20,000, the donor must obtain a qualified appraisal and attach a signed copy of it to his or her tax return. Preferably, the appraiser of the donation should specialize in the particular type of artwork.
For jewelry and artwork valued at more than $20,000, donors should retain a photograph of the item that they can show the IRS if requested. Ideally, the photo should be at least 8”x10” and in color.
How is the value of stock donations calculated for deduction purposes? Donating appreciated securities like stock can be a tax-wise strategy for both donors and charities. The donor avoids paying capital gains tax on the stock, while the not-for-profit receives the full value of the security when it sells.
According to the IRS, the value of a donated security for deduction purposes is its value at the midpoint of the day on which it is donated—not the day the stock is sold. The donor is considered to have parted dominion over the stock on the day he or she donates it.
Noncash donations can help a not-for-profit organization generate revenue, but not-for-profits should be aware of how those donations must be documented for donors.
Questions? Uncertain how to value or provide the proper documentation? The team at Dembo Jones is happy to provide the insight that your not-for-profit needs. Give us a call.