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December 4, 2018
Make a charitable contribution. Get a tax deduction. This process seems pretty straightforward. But in reality, the rules are quite complex depending on the amount and type of donation.
Take for example noncash charitable contributions of $5,000 or more. Many people get tripped up by the fair market value and appraisal requirements, causing them to lose their deductions.
Here are some things to keep in mind, so you don’t become one of them.
If you make a noncash contribution that’s worth over $500, you have to complete Form 8283 to report your donation. In addition to providing details about the transaction, there’s also a spot for your cost basis—just like when you’re claiming a capital gain or loss. The IRS has been known to disallow deductions where the only thing missing was the cost basis. And not knowing this information isn’t a valid excuse.
When you make a noncash contribution, you have to determine the fair market value (FMV) of the property. FMV is the money you would have received if you sold the assets instead. It’s important to make sure the FMV is reasonable relative to the property you’re donating. If the value seems unusually high, the IRS may ask you to substantiate your claim. For that reason, it’s a good idea to keep any FMV calculations in your files.
Another potential pitfall? Many people believe they can deduct the FMV in full. In some cases that’s true, but in other situations, you may only be eligible for a partial deduction.
In general, any property valued at more than $5,000 has to be appraised, unless you’re donating publicly-traded securities. More importantly, it has to be a “qualified” appraisal, or the IRS will likely disallow the deduction. To be qualified, the assessment must:
If you miss even one of these elements, it could potentially raise a red flag with the IRS.
We don’t believe complex tax rules should stand in the way of philanthropy. Our tax specialists have a deep understanding of the regulations and will work with you to complete all the necessary tax forms and documents. Contact your Cerity Partners advisor to discuss your charitable giving strategy or other tax-planning needs.
Please read important disclosures here.
Steve is a Partner in the Orange County office and leads the firm’s Tax Practice. He has more than thirty years of experience in tax...
Ben Pace, Tom Cohn and James Lebenthal
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