Are there special rules for donating noncash items?
A taxpayer is allowed to deduct the full fair market value, not the cost, of donated assets that they owned for one year or more. If the donated property has a value greater than $500, IRS Form 8283 (Noncash Charitable Contributions) will need to be filed with their income tax return. Form 8283 provides details about the assets such as a description and their individual values. If the donated property has a value greater than $5,000, you would generally need to attach an appraisal, unless you are donating listed securities. Also, clothing and household items donated generally must be in ‘good used condition to better’ to be deductible.
As a tax practitioner, could you provide us with an example of a charitable contribution opportunity that taxpayers may not be aware exists?
In recent years, we have seen a dramatic increase in the use of conservation easements as an effective tax-planning tool. Conservation easements that qualify as a charitable deduction under IRS Code Section 170(h) are legally binding permanent restrictions on the use of the land being preserved. The benefits associated with conservation easements include impressive income tax deductions as well as estate tax reductions and exclusions. The value of the easement is deductible as a charitable contribution. For most ownership entities, the amount of the deduction is currently limited to no more than 50 percent of the donor’s AGI. Any excess contribution may be carried forward 15 years. At this time, the 50 percent deduction and 15-year carry forward apply to easements in place by the end of 2009, after which they will revert to the previous rules of a 30 percent deduction and a five-year carry forward. Provisions to make these greater tax incentives permanent are being promoted in Congress. Those interested in pursuing this strategy should seek assistance from qualified professionals experienced in this field.
Although many people donate out of generosity and philanthropic values, the IRS rewards taxpayers with deductions for charitable donations. Charitable giving provides taxpayers with an opportunity to reduce income taxes by leveraging tax rules while simultaneously expanding their philanthropic impact. Given our current state of economy and natural disasters, what may seem to be a small gift on your part could make a world of difference to someone in need.
Brent Saunier, CPA, is a tax manager at Habif, Arogeti & Wynne, LLP with more than 10 years of experience in accounting operations and financial management. He has worked extensively in industries such as distribution, health care, manufacturing, professional services, retail service and trucking. Reach him at (404) 814-4960 or [email protected].