How to Find Values for Items Donated to Charities
Consider the cost and selling price of the item., Use tax programs to determine FMV., Use the sales of comparable property as FMV., Use the value of replacement cost as FMV., Get an expert opinion.
Step-by-Step Guide
-
Step 1: Consider the cost and selling price of the item.
One of the most used valuation methods is to determine at what price your donated property would or did actually sell.
When calculating FMV based on the selling price, the IRS states that the most accurate representation of the value of an item comes from its sale in an open market.
This type of market could include The Salvation Army or Goodwill, which are both charitable organizations that are known for reselling used goods.
When determining the FMV based on the sale of your item, consider the following:
If your item was actually sold, was it sold relatively close to when you donated your goods? If so, the IRS finds that the value is a good reflection of FMV.
Were you involved in the resale of the item? In calculating FMV, the IRS wants the resale of the donated property to be at “arms length,” meaning that the person making the contribution was not involved in the resale of the property.
If an item that you donated can still be purchased for a the same amount that you paid, even if the item’s value is greater than that cost, you will only be able to claim the purchase price.
For example, you purchased goods at wholesale for $5,000 but the resale value at the time of donation was $10,000.
The IRS only allows you to claim $5,000 as the fair market value so long as the item was still being sold elsewhere at wholesale prices.
In some instances you would be able to take the higher deduction with appropriate documentation.
If there was an increase in the value of an item, you could claim the increased price as your FMV, so long as you have an expert explaining why this was a unique situation.
For example, you purchased a painting for $10,000 and at the time of donation, one year later, it was worth $15,000.
Since this was a unique item, unlike wholesale goods, you can claim $15,000 as your charitable donation.
You are required to get an official appraisal establishing the new price. -
Step 2: Use tax programs to determine FMV.
In order to assist you in locating the sales price of donated items, tax software programs such as H&R Block’s TaxCut and Intuit's TurboTax, provide donors with an estimated value of the items that they donate.
When completing your taxes with one of these programs, you enter in a description of the item that you donated and the program will compare your item to the sale of other similar items online.
You can then use the program’s valuation for FMV., The second way that a person can calculate FMV for donated items is by looking at the price at which properties similar to the donated property sold.
For example, if you donate the first edition of a rare book, you can then check whether any other first editions of that book sold recently sold and at what price.
If your book is in a similar condition, you can use the sale price as your FMV.
When using this method of valuation, you have to be careful to choose property that is similar not only in the type of property but also in a similar condition.
For example, if you donated a rare book that was slightly damaged, you could not use the sale price of the same book in pristine condition as a comparable sale.You can look online at places such as EBay or visit stores such as Goodwill and Salvation Army to determine the selling price for comparable clothing and household items., In some instances, the FMV will be best reflected in what it would cost to actually replace, build or manufacture the property that you plan to donate plus a deduction for depreciation.
For example, if you planned to donate a used car, you can begin your FMV calculation by determining how much it would cost for you to purchase a similar new car.
Once you find a new car, you would subtract the depreciation of your used/donated car from the cost of the new car.
The amount left would be your FMV for your charitable donation., For certain types of property, you will need to get an expert’s opinion to establish the fair market value of the item.
This is especially true for works of art or for valuing rare coins.
When using an expert to provide the FMV for an item, you must consider:
Whether the expert is knowledgeable and competent; and Whether the expert’s opinion is thorough and supported by facts and experience.
An expert must provide you with a written appraisal of the property. -
Step 3: Use the sales of comparable property as FMV.
-
Step 4: Use the value of replacement cost as FMV.
-
Step 5: Get an expert opinion.
Detailed Guide
One of the most used valuation methods is to determine at what price your donated property would or did actually sell.
When calculating FMV based on the selling price, the IRS states that the most accurate representation of the value of an item comes from its sale in an open market.
This type of market could include The Salvation Army or Goodwill, which are both charitable organizations that are known for reselling used goods.
When determining the FMV based on the sale of your item, consider the following:
If your item was actually sold, was it sold relatively close to when you donated your goods? If so, the IRS finds that the value is a good reflection of FMV.
Were you involved in the resale of the item? In calculating FMV, the IRS wants the resale of the donated property to be at “arms length,” meaning that the person making the contribution was not involved in the resale of the property.
If an item that you donated can still be purchased for a the same amount that you paid, even if the item’s value is greater than that cost, you will only be able to claim the purchase price.
For example, you purchased goods at wholesale for $5,000 but the resale value at the time of donation was $10,000.
The IRS only allows you to claim $5,000 as the fair market value so long as the item was still being sold elsewhere at wholesale prices.
In some instances you would be able to take the higher deduction with appropriate documentation.
If there was an increase in the value of an item, you could claim the increased price as your FMV, so long as you have an expert explaining why this was a unique situation.
For example, you purchased a painting for $10,000 and at the time of donation, one year later, it was worth $15,000.
Since this was a unique item, unlike wholesale goods, you can claim $15,000 as your charitable donation.
You are required to get an official appraisal establishing the new price.
In order to assist you in locating the sales price of donated items, tax software programs such as H&R Block’s TaxCut and Intuit's TurboTax, provide donors with an estimated value of the items that they donate.
When completing your taxes with one of these programs, you enter in a description of the item that you donated and the program will compare your item to the sale of other similar items online.
You can then use the program’s valuation for FMV., The second way that a person can calculate FMV for donated items is by looking at the price at which properties similar to the donated property sold.
For example, if you donate the first edition of a rare book, you can then check whether any other first editions of that book sold recently sold and at what price.
If your book is in a similar condition, you can use the sale price as your FMV.
When using this method of valuation, you have to be careful to choose property that is similar not only in the type of property but also in a similar condition.
For example, if you donated a rare book that was slightly damaged, you could not use the sale price of the same book in pristine condition as a comparable sale.You can look online at places such as EBay or visit stores such as Goodwill and Salvation Army to determine the selling price for comparable clothing and household items., In some instances, the FMV will be best reflected in what it would cost to actually replace, build or manufacture the property that you plan to donate plus a deduction for depreciation.
For example, if you planned to donate a used car, you can begin your FMV calculation by determining how much it would cost for you to purchase a similar new car.
Once you find a new car, you would subtract the depreciation of your used/donated car from the cost of the new car.
The amount left would be your FMV for your charitable donation., For certain types of property, you will need to get an expert’s opinion to establish the fair market value of the item.
This is especially true for works of art or for valuing rare coins.
When using an expert to provide the FMV for an item, you must consider:
Whether the expert is knowledgeable and competent; and Whether the expert’s opinion is thorough and supported by facts and experience.
An expert must provide you with a written appraisal of the property.
About the Author
Lisa Miller
Brings years of experience writing about cooking and related subjects.
Rate This Guide
How helpful was this guide? Click to rate: