President Trump’s tax proposals would put many of the current itemized tax deductions on the chopping block; however, charitable contributions are not among them. For the purposes of this article, we’ll focus on one type of charitable contribution – the donation of tangible personal property. If you are contemplating a gift of tangible personal property to charity, it is important to be aware of the complex tax issues it can present, which will need to be carefully evaluated in order to maximize your gift and the possible tax deduction.
Tangible gifts of personal property are defined as physical property other than land or buildings. Items that are included in this category are clothing, household items, cars, jewelry, artwork, stamp and coin collections, etc. It does not include stocks, bonds, or cash.
The income tax deduction is determined based on how the donor held the property, whether the tangible assets can be used by the charity in its tax-exempt function, and whether the gift is of a present or future interest in the asset.
Normally, the amount deductible is the fair market value of tangible personal property. If the fair market value is greater than $5,000, an appraisal must be obtained to substantiate the deduction. In addition, if the asset has appreciated in value since you purchased it, you need to look to how the asset is being used by the charity to determine the amount of the deduction. For example, if you donate artwork to a charity but it is not used in their exempt function (e.g. displayed in a museum), then you are limited to your basis or the amount you paid for the asset, rather than the current fair market value.
Another example is the donation of a car. There is a special rule related to cars that are not used by a charity for charitable purposes, such as making deliveries of food to the needy or transferring the vehicle to a needy individual under their charitable purpose. If the charity sells the vehicle, the deduction is limited to the proceeds from its sale. The charity is required to provide Form 1098-C to the donor to report the amount of the sale.
There are a multitude of other tax issues related to donations of tangible personal property. When making contributions of tangible personal property to charity, it makes good sense to consult with a tax advisor to ensure all tax issues have been addressed in order to maximize your tax deduction.
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