Contributions of Property
If you contribute property to a qualified organization, the amount
of your charitable contribution is generally the fair market
value of the property at the time of the contribution. However,
if the property has increased in value, you may have to make some
adjustments to the amount of your deduction. See Giving Property
That Has Increased in Value, later.
For information about the records you must keep and the information
you must furnish with your return if you donate property, see
Records To Keep and How To Report, later.
Contributions Subject to Special Rules
Special rules apply if you contributed:
- Property subject to a debt,
- A partial interest in property,
- A future interest in tangible personal property, or
- Inventory from your business.
These special rules are described next.
Property subject to a debt.
If you contribute property subject to a debt (such as a mortgage),
you must reduce the fair market value of the property by:
- Any allowable deduction for interest that you paid (or will
pay) attributable to any period after the contribution, and
- If the property is a bond, the lesser of:
- Any allowable deduction for interest you paid (or will pay)
to buy or carry the bond that is attributable to any period before the
contribution, or
- The interest, including bond discount, receivable on the
bond that is attributable to any period before the contribution, and
that is not includible in your income due to your accounting
method.
This prevents a double deduction of the same amount as
investment interest and also as a charitable contribution.
If the debt is assumed by the recipient (or another person), you
must also reduce the fair market value of the property by the amount
of the outstanding debt.
If you sold the property to a qualified organization at a bargain
price, the amount of the debt is also treated as an amount realized on
the sale or exchange of property. For more information, see
Bargain Sales under Giving Property That Has Increased
in Value, later.
Partial interest in property.
Generally, you cannot deduct a charitable contribution (not made by
a transfer in trust) of less than your entire interest in property. A
contribution of the right to use property is a contribution of less
than your entire interest in that property and is not deductible.
Example 1.
You own a 10-story office building and donate rent-free use of the
top floor to a charitable organization. Since you still own the
building, you have contributed a partial interest in the property and
cannot take a deduction for the contribution.
Example 2.
Mandy White owns a vacation home at the beach that she sometimes
rents to others. For a fund-raising auction at her church, she donated
the right to use the vacation home for one week. At the auction, the
church received and accepted a bid from Lauren Green equal to the fair
rental value of the home for one week. Mandy cannot claim a deduction
because of the partial interest rule just discussed.
Note.
Lauren cannot claim a deduction either because she received a
benefit equal to the amount of her payment. See Contributions
From Which You Benefit, earlier.
Exceptions.
You can deduct a charitable contribution of a partial interest in
property only if that interest represents one of the following listed
items.
- A remainder interest in your personal home or farm. A
remainder interest is one that passes to a beneficiary after the end
of an earlier interest in the property.
Example. You keep the right to live in your home during
your lifetime and give your church a remainder interest that begins
upon your death.
- An undivided part of your entire interest. This must consist
of a part of every substantial interest or right you own in the
property and must last as long as your interest in the property
lasts.
Example. You contribute voting stock to a qualified
organization but keep the right to vote the stock. The right to vote
is a substantial right in the stock. You have not contributed an
undivided part of your entire interest and cannot deduct your
contribution.
- A partial interest that would be deductible if transferred
in trust.
- A qualified conservation contribution (defined under
Qualified conservation contribution in Publication
561).
For information about how to figure the value of a contribution of
a partial interest in property, see Partial Interest in Property
Not in Trust in Publication 561.
Future interest in tangible personal property.
You can deduct the value of a charitable contribution of a future
interest in tangible personal property only after all intervening
interests in and rights to the actual possession or enjoyment of the
property have either expired or been turned over to someone other than
yourself, a related person, or a related organization.
Related persons include your spouse, children, grandchildren,
brothers, sisters, and parents. Related organizations may include a
partnership or corporation that you have an interest in, or an estate
or trust that you have a connection with.
Tangible personal property.
This is any property, other than land or buildings, that can be
seen or touched. It includes furniture, books, jewelry, paintings, and
cars.
Future interest.
This is any interest that is to begin at some future time,
regardless of whether it is designated as a future interest under
state law.
Example.
You own an antique car that you contribute to a museum. You give up
ownership, but retain the right to keep the car in your garage with
your personal collection. Since you keep an interest in the property,
you cannot deduct the contribution. If you turn the car over to the
museum in a later year, giving up all rights to its use, possession,
and enjoyment, you can take a deduction for the contribution in that
later year.
Inventory.
If you contribute inventory (property that you sell in the course
of your business), the amount you can claim as a contribution
deduction is the smaller of its fair market value on the day you
contributed it or its basis. The basis of donated inventory is any
cost incurred for the inventory in an earlier year that you would
otherwise include in your opening inventory for the year of the
contribution. You must remove the amount of your contribution
deduction from your opening inventory. It is not part of the cost of
goods sold.
If the cost of donated inventory is not included in your opening
inventory, the inventory's basis is zero and you cannot claim a
charitable contribution deduction. Treat the inventory's cost as you
would ordinarily treat it under your method of accounting. For
example, include the purchase price of inventory bought and donated in
the same year in the cost of goods sold for that year.
Determining Fair Market Value
This section discusses general guidelines for determining the fair
market value of various types of donated property. Publication 561
contains a more complete discussion.
Fair market value is the price at which property would change hands
between a willing buyer and a willing seller, neither having to buy or
sell, and both having reasonable knowledge of all the relevant facts.
Used clothing.
The fair market value of used clothing and other personal items is
usually far less than the price you paid for them. There are no fixed
formulas or methods for finding the value of items of clothing.
You should claim as the value the price that buyers of used items
actually pay in used clothing stores, such as consignment or thrift
shops.
Household goods.
The fair market value of used household goods, such as furniture,
appliances, and linens, is usually much lower than the price paid when
new. These items may have little or no market value because they are
in a worn condition, out of style, or no longer useful. For these
reasons, formulas (such as using a percentage of the cost to buy a new
replacement item) are not acceptable in determining value.
You should support your valuation with photographs, canceled
checks, receipts from your purchase of the items, or other evidence.
Magazine or newspaper articles and photographs that describe the items
and statements by the recipients of the items are also useful. Do not
include any of this evidence with your tax return.
If the property is valuable because it is old or unique, see the
discussion under Paintings, Antiques, and Other Objects of Art
in Publication 561.
Cars, boats, and aircraft.
If you contribute a car, boat, or aircraft to a charitable
organization, you must determine its fair market value.
Certain commercial firms and trade organizations publish guides,
commonly called blue books, containing complete dealer sale
prices or dealer average prices for recent model years. The guides may
be published monthly or seasonally, and for different regions of the
country. These guides also provide estimates for adjusting for unusual
equipment, unusual mileage, and physical condition. The prices are not
official and these publications are not considered an appraisal
of any specific donated property. But they do provide clues for making
an appraisal and suggest relative prices for comparison with current
sales and offerings in your area.
These publications are sometimes available from public libraries or
from the loan officer at a bank, credit union, or finance company.
Except for inexpensive small boats, the valuation of boats should
be based on an appraisal by a marine surveyor because the physical
condition is critical to the value.
Example.
You donate your car to a local high school for use by students
studying automobile repair. Your credit union told you that the
blue book value of the car is $1,600. However, your car needs
extensive repairs and, after some checking, you find that you could
sell it for $750. You can deduct $750, the true fair market
value of the car, as a charitable contribution.
Large quantities.
If you contribute a large number of the same item, fair market
value is the price at which comparable numbers of the item are being
sold.
Example.
You purchase 500 bibles for $1,000. The person who sells them to
you says the retail value of these bibles is $3,000. If you contribute
the bibles to a qualified organization, you can claim a deduction only
for the price at which similar numbers of the same bible are currently
being sold. Your charitable contribution is $1,000, unless you can
show that similar numbers of that bible were selling at a different
price at the time of the contribution.
Giving Property That Has Decreased in Value
If you contribute property with a fair market value that is less
than your basis in it, your deduction is limited to its fair market
value. You cannot claim a deduction for the difference between the
property's basis and its fair market value.
Your basis
in property is generally what you
paid for it. If you need more information about basis, get Publication
551, Basis of Assets. You may want to get Publication 551
if you contribute property that you:
- Received as a gift or inheritance,
- Used in a trade, business, or activity conducted for profit,
or
- Claimed a casualty loss deduction for.
Common examples of property that decreases in value include
clothing, furniture, appliances, and cars.
Giving Property That Has Increased in Value
If you contribute property with a fair market value that is more
than your basis in it, you may have to reduce the fair market
value by the amount of appreciation (increase in value) when you
figure your deduction.
Your basis in property is generally what you paid for it. If you
need more information about basis, get Publication 551.
Different rules apply to figuring your deduction, depending on
whether the property is:
- Ordinary income property, or
- Capital gain property.
Ordinary Income Property
Property is ordinary income property if its sale at fair market
value on the date it was contributed would have resulted in ordinary
income or in short-term capital gain. Examples of ordinary income
property are inventory, works of art created by the donor, manuscripts
prepared by the donor, and capital assets (defined later, under
Capital Gain Property) held 1 year or less.
Property used in a trade or business.
Property used in a trade or business is considered ordinary income
property to the extent of any gain that would have been treated as
ordinary income because of depreciation had the property been sold at
its fair market value at the time of contribution. See chapter 3 of
Publication 544, Sales and Other Dispositions of Assets,
for the kinds of property to which this rule applies.
Amount of deduction.
The amount you can deduct for a contribution of ordinary income
property is its fair market value less the amount that
would be ordinary income or short-term capital gain if you sold the
property for its fair market value. Generally, this rule limits the
deduction to your basis in the property.
Example.
You donate stock that you held for 5 months to your church. The
fair market value of the stock on the day you donate it is $1,000, but
you paid only $800 (your basis). Because the $200 of appreciation
would be short-term capital gain if you sold the stock, your deduction
is limited to $800 (fair market value less the appreciation).
Exception.
Do not reduce your charitable contribution if you include the
ordinary or capital gain income in your gross income in the same year
as the contribution. See Ordinary or capital gain income included
in gross income under Capital Gain Property, next, if
you need more information.
Capital Gain Property
Property is capital gain property if its sale at fair market value
on the date of the contribution would have resulted in long-term
capital gain. Capital gain property includes capital assets held more
than 1 year.
Capital assets.
Capital assets include most items of property that you own and use
for personal purposes or investment. Examples of capital assets are
stocks, bonds, jewelry, coin or stamp collections, and cars or
furniture used for personal purposes.
For purposes of figuring your charitable contribution, capital
assets also include certain real property and depreciable property
used in your trade or business and, generally, held more than 1 year.
(You may have to treat this property as partly ordinary income
property and partly capital gain property.)
Real property.
Real property is land and generally anything that is built on,
growing on, or attached to land.
Depreciable property.
Depreciable property is property used in business or held for the
production of income and for which a depreciation deduction is
allowed.
For more information about what is a capital asset, see chapter 2
of Publication 544.
Amount of deduction - general rule.
When figuring your deduction for a gift of capital gain property,
you usually can use the fair market value of the gift.
Exceptions.
However, in certain situations, you must reduce the fair
market value by any amount that would have been long-term
capital gain if you had sold the property for its fair market value.
Generally, this means reducing the fair market value to the property's
cost or other basis. You must do this if:
- The property (other than qualified appreciated stock) is
contributed to certain private nonoperating foundations,
- The contributed property is tangible personal property that
is put to an unrelated use by the charity, or
- You choose the 50% limit instead of the 30% limit, discussed
later.
Contributions to private nonoperating foundations.
The reduced deduction applies to contributions to all private
nonoperating foundations other than those qualifying for the 50%
limit, discussed later.
However, the reduced deduction does not apply to contributions of
qualified appreciated stock. Qualified appreciated stock is any stock
in a corporation that is capital gain property and for which market
quotations are readily available on an established securities market
on the day of the contribution. But stock in a corporation does not
count as qualified appreciated stock to the extent you and your family
contributed more than 10% of the value of all the outstanding stock in
the corporation.
Contributions of tangible personal property.
The term tangible personal property means any property, other than
land or buildings, that can be seen or touched. It includes furniture,
books, jewelry, paintings, and cars.
The term unrelated use
means a use that is unrelated
to the exempt purpose or function of the charitable organization. For
a governmental unit, it means the use of the contributed property for
other than exclusively public purposes.
Example.
If a painting contributed to an educational institution is used by
that organization for educational purposes by being placed in its
library for display and study by art students, the use is not an
unrelated use. But if the painting is sold and the proceeds are used
by the organization for educational purposes, the use is an unrelated
use.
Ordinary or capital gain income included in gross income.
You do not reduce your charitable contribution if you include the
ordinary or capital gain income in your gross income in the same year
as the contribution. This may happen when you transfer installment or
discount obligations or when you assign income to a charitable
organization. If you contribute an obligation received in a sale of
property that is reported under the installment method, see
Publication 537, Installment Sales.
Example.
You donate an installment note to a qualified organization. The
note has a fair market value of $10,000 and a basis to you of $7,000.
As a result of the donation, you have a short-term capital gain of
$3,000 ($10,000 - $7,000), which you include in your income for
the year. Your charitable contribution is $10,000.
Bargain Sales
A bargain sale of property to a qualified organization (a sale or
exchange for less than the property's fair market value) is partly a
charitable contribution and partly a sale or exchange.
Part that is a sale or exchange.
The part of the bargain sale that is a sale or exchange may result
in a taxable gain. For more information on determining the amount of
any taxable gain, see Bargain sales to charity in chapter 1
of Publication 544.
Part that is a charitable contribution.
Figure the amount of your charitable contribution in three steps.
Step 1.
Subtract the amount you received for the property from the
property's fair market value at the time of sale. This gives you the
fair market value of the contributed part.
Step 2.
Find the adjusted basis of the contributed part. It equals:
Adjusted basis of
entire property x fair market value of contributed part ÷ fair
market value of entire property
Step 3.
Determine whether the amount of your charitable contribution is the
fair market value of the contributed part (which you found in
Step 1) or the adjusted basis of the contributed part
(which you found in Step 2). Generally, if the property
sold was capital gain property, your charitable contribution is the
fair market value of the contributed part. If it was ordinary income
property, your charitable contribution is the adjusted basis of the
contributed part. See the ordinary income property and capital gain
property rules (discussed earlier) for more information.
Example.
You sell ordinary income property with a fair market value of
$10,000 to a church for $2,000. Your basis is $4,000 and your adjusted
gross income is $20,000. You make no other contributions during the
year. The fair market value of the contributed part of the property is
$8,000 ($10,000 - $2,000). The adjusted basis of the contributed
part is $3,200 ($4,000 × [$8,000 ÷ $10,000]).
Because the property is ordinary income property, your charitable
contribution deduction is limited to the adjusted basis of the
contributed part. You can deduct $3,200.
Previous | First | Next
Publication Index | 2002 Tax Help Archives | Tax Help Archives | Home