Charitable Contributions

Generally, when you contribute to a qualified organization, the amount you are allowed to deduct as a charitable contribution is fair market value of the property when you make the contribution.  But what is the fair market value of property?

    Fair market value is the price a willing buyer would pay a willing seller for property, when neither have to buy or sell, and both have knowledge of all the relevant facts.  In other words, if I offer to buy your old refrigerator  for $25 and you except my offer, the fair market value of the old refrigerator is $25.

    Very often, you contribute used clothing or household goods to charitable organizations.  Usually, the organization will give you a receipt for the donation, but the receipt doesn't contain any statement of value.  The fair market value of used clothes and household goods are far less then the price that was paid to acquire them.  And there are no fixed formulas that you can use to determine the value of used clothing or household goods.  You need to determine what buyers are actually paying for used items.  For used clothing, you can do this buy visiting your local used clothing store or thrift shop.  For household goods, you can also look in the classified sections of the local newspaper, or to any of the publications that advertise used items for sale.  The Salvation Army also has a brochure in which they list the common items that are donated to charity, with a range of values for those items.  It is very useful brochure.  And remember, you need to make a list of the items that you are donating to charity.

    In recent months, I've heard quite a few commercials touting the tax benefits of donating an old car to charity.  If you do donate your car to charity, you will need to determine the fair market value.  There are publications, commonly called "blue books", that contain retail, wholesale, and average prices for most recent model years for most vehicles.  They also contain estimates that can be used to adjust the prices for mileage, special equipment, or physical condition.  Although the prices in these publications are not "official", they do provide a good foundation on which to base your valuation.  These publications are sometimes available at the public library.  More often, they are available from your insurance agent or the loan officer at your bank or credit union.  But the important factor is the fair market value.  The "blue book" value of your car is $2,000.  But it needs a lot of repairs and you determine that you could sell it for $1,000.  In this situation, your charitable contributions would be a $1,000, the fair market value of your car.

    If you contribute property that has decreased in value, your charitable deduction is limited to the fair market value.  If you purchased the item you are donating for $1,000 but it's fair market value is $800, your deduction is limited to $800.  This is a brief overview of the more common charitable contributions of property.  There are special rules that apply to certain property contributions, such as property subject to a debt, or inventory from your business.

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