*It's that time again to "Say Goodbye," (Chris
Brown, 2006) to all of your unwanted clothes, tattered furniture and
tired lava lamps. The 70s have come and gone again, two times now.
This week, I'm sharing one of your questions regarding giving
property to charity.
Dear Shannon : My husband has been after me to "spring clean," and
has dubbed me the "Queen of Clutter". He has even tried to tell me
that he would "Pay me to get rid of old clothes/furniture/junk". I
asked him, "How is that possible?" He said that if we "donate to
charities," we can get a slip to turn in for our taxes. Is there a
limit on the dollar amount that you can claim for donations per
year? From - Trying To Get Paid For the Mess That I Made, In the
Beautiful State of Maryland
Dear Messy : Yes, you can take a charitable contribution for all
your donations of non-cash items made to a 501(c)(3) organization;
such as, clothes, appliances, household goods, toys, or furniture.
You can only deduct the fair market value of the items, not what you
originally paid for them.
How much can you deduct? The "Sky is the Limit?" (Notorius B.I.G.,
1997) I'm afraid not. In most cases, the amount you can deduct for
your contributions is limited to 50% of your adjusted gross income.
However, in some cases, your contribution can be limited by as much
as 20% or 30% of your adjusted gross income.
What happens if you're so charitable that you give more than your
limit? All is not lost. You can take any unused contributions and
carry them forward to your tax return next year (for up to 5 years).
Here are a few pointers to keep in mind about property donations:
Pointer 1: "The (Real) Shim Shady," (Eminem, 1999).
Your tax deduction must be based off the "real" fair market value of
the property - not what you paid for it and not what your momma said
she thinks it worth. How do you find the real fair market value?
Thanks to the internet, there are several websites that have free
valuation guides, such as The Salvation Army's website -
www.satruck.com. You may be surprised at how little your used items
are worth. Keep in mind, this is only one source for valuing your
used items. Many tax preparation software programs also provide
valuation guides that can result in much higher values. If you are
giving away your $500 Burberry purse (because it's so last season),
the fair market value is probably significantly higher than the $20
value listed on the Salvation Army's website. For truly expensive
item, try searching eBay or a similar website. Print out a copy of
your search and include that in your tax file as proof that your
one-year old Burberry purse was worth more than $20.
Pointer 2: Form 8283 .
You will need to complete Form 8283, Non-Cash Charitable
Contributions , for all non-cash donations over $500 and attach it
your tax return. Fill out Section A of Form 8283 for non-cash
contributions less than $5,000. For non-cash contributions over
$5,000, fill out Section B of Form 8283 and don't forget to have the
organization sign the form. You may also have to get a written
appraisal for the value of the property being donated. If the
organization sells, or otherwise disposes, of the property you
donated within 2 years after the date of receipt of your
contribution, the organization must then file Form 8282, Donee
Information Return (within 125 days from the date of sale) and send
a copy of this to you.
Pointer 3: Keep, Keepin On' (…You gotta keep keepin' on, D. Train
You must keep good records to prove or substantiate your property
donations. Most charities have pre-printed forms that can serve as
good receipts. You should keep a file for all your property
donations and keep copies of these records for at least 3 years.
Pointer 4: Mercedes Boy, (Peebles, 1988).
In recent years, car donations have also become very popular. But
beware: The IRS was so concerned about people taking large
charitable contributions for cars that were basically worthless
(sort of like those in Fred Sanford's
junk yard) that the tax laws
were changed to force more accurate valuations of car donations.
Generally, you can find this dollar amount in any of the popular
used car guides. But beware: If you take the highest value listed in
the guide, be prepared to support it. Also, if your car needs major
repairs, it will be difficult to prove that it is worth the highest
fair market value listed in the used car guide.
As of January 1, 2005, if you donate car to a charity, and the
value of the car is more than $500, your deduction depends on what
happens to the car after the charity gets it. If the charity sells
the car without making any improvements or changes to it ( i.e.,
they don't "pimp your ride"), your deduction is what the charity
gets for your car (i.e., the gross sales proceeds). If the car is
altered or improved by the charity (i.e., they turn your "hooptie"
into a "whooptie woo"), your deduction is the new fair market value
of the car. Also, you must get a receipt or thank you letter from
the charity; attach it to your tax return. For more on car
donations, see IRS Publication 4302, A Charity's Guide to Car
Donations and IRS Publication 4303, A Donor's Guide to Car
Shannon King Nash is the author of the award-winning book entitled,
"For the Love of Money: The 411 to Taking Control of Your Taxes and
Building Your Net Worth." The above materials were taken from that
book and may not be reproduced without the express written consent
of the author. Shannon uses song lyrics and entertaining stories
ripped from the headlines to teach readers how to manage their
finances and taxes. Shannon is a CPA, Tax Attorney, and regular
expert commentator on KJLH FM Radio in Los Angeles, and has appeared
on national television. Contact the Nash Management Group at
818-986-2665 or visit www.nashgroup-usa.com .
By Shannon King Nash, Esq., CPA