As the year comes to a close, many taxpayers consider making clothing and household item donations both to give back and to optimize their tax deductions.
Recent cases, like the one involving Duncan Bass, underscore the significance of understanding and adhering to IRS regulations related to these contributions.
Mr. Bass made an astonishing 172 trips to Goodwill and the Salvation Army, strategically ensuring that each donation receipt remained below the $250 threshold. Unfortunately, he didn’t account for the rules on (a) aggregation of similar items and (b) appraisals.
But before delving into aggregation and appraisal, let’s clarify the $250 rule. If you make a single charitable contribution of $250 or more, you must obtain written acknowledgment from the charitable organization to validate your deduction. This is often referred to as a “contemporaneous written acknowledgment.”
- It confirms the amount of cash or describes any property you contributed.
- It must indicate whether the charity provided you with any goods or services in return for the gift. If so, it must furnish a description and a good faith estimate of the value of those goods or services.
- If applicable, it must specify that the only benefit you received was an intangible religious benefit.
If you make multiple smaller gifts to the same charity throughout the year, you’ll need acknowledgment only if any single gift is $250 or more.
Determining fair market value can be the most challenging aspect. The fair market value is not what you originally paid for an item; rather, it’s what it’s worth presently. Numerous reputable resources, such as The Salvation Army and Goodwill, offer donation value guides.
If you claim a deduction of over $5,000 for a non-cash charitable contribution of one item or a group of similar items, you must obtain a qualified appraisal for that item or group of items and attach it to your tax return.
Key point. A “group of similar items” can trigger the appraisal requirement. This is precisely what occurred in Mr. Bass’s case. His 172 trips comprised clothing donations totaling $13,852 and $11,594 for the two years before the court—well surpassing the $5,000 appraisal requirement for the group.
