3 Things to Remember About Documenting Charitable Gifts of Property, Securities and Art.
Last month in this blog, we described five ways to be diligent about documenting charitable gifts of cash or out-of-pocket expenses to preserve your tax deduction. But what about gifts of property – does giving something other than cash change the taxpayer’s responsibilities? According to the tax regulations, the answer is no and yes.
What does not change with charitable gifts of securities, art, vehicles, clothing and other property is that the burden is still on you. You must be sure that the recipient is a qualified non-profit organization and that you compile and file the necessary paperwork contemporaneously with the gift, meaning by the earlier of the date you file your return and the due date of your return, including extensions. What does change with these charitable gifts of property, however, is that the level of effort needed to meet the substantiation requirements is greater, especially as the value of the donation goes up. The IRS has published guides [here] and [here] to help taxpayers with the various substantiation and disclosure requirements. Here are a few points to remember regarding property donations.
1. The more you give, the more you need. The IRS will not reward an uptick in your philanthropy by cutting you slack on substantiation. In fact, the requirements on both you and the receiving charity are greater as you increase the value of your gifts of property. Below is an outline that shows you what we mean by this. (Tip: to determine which requirements apply if you made more than one gift, combine your claimed deductions for all similar items donated to any charity during the year.)
For deductions under $250
- You must retain in your files:
- A contemporaneous receipt from the charity, with your name, the date and location of the gift and a reasonably detailed description of the property; and
- Your own reliable records, which, in addition to the information you received from the charity, should include the fair market value of the property (and how you determined the value).
- If relevant, you also should document your cost basis in the property, any conditions attached to the gift, and, if you are making a gift of a partial interest, the amount you are claiming as a deduction.
- No receipt from the charity is required if it would be impracticable to obtain (e.g., if you leave clothing at an unattended drop box).
For deductions of $250 - $500
- In addition, the charity’s receipt must detail whether the charity provided you any goods or services in exchange for the gift, with a description and value of any such goods or services, except when the goods and services are insubstantial in value.
- For multiple gifts of $250 or more to the same charity in a single year, a single receipt from the charity reflecting your total gifts is sufficient.
- For gifts of $250 or more, a receipt from the charity is always required. (There is no “drop box” exception.)
For deductions over $500, up to $5,000
- In addition, submit IRS Form 8283 with your return, and your records must include:
- How you acquired the property (e.g., by purchase, gift or inheritance);
- Approximate date you acquired the property; and
- Cost basis for property (not required for publicly traded securities and in certain other circumstances.)
- Gifts of cars, boats and airplanes require additional substantiation.
- Certain gifts of clothing or a household item valued over $500 require an appraisal.
For deductions over $5,000
- In addition, you must obtain a qualified appraisal and attach a summary of the appraisal to your return. (No appraisal required for publicly traded securities.)
- Attach the entire appraisal to your return if you are claiming a deduction of (i) $20,000 or more for gifts of art or (ii) over $500,000 for all other types of property.
- Gifts of art require additional substantiation.
2. Pay attention to details. When dealing with charitable contributions of property, it’s important to anticipate that there may be IRS requirements particular to the type of property, in addition to those requirements driven by the value of the property. You must pay attention, then, to the details of the IRS rules. With property contributions, you are not only required to obtain statements from the charities, but you are also responsible for knowing which forms you need to file with the IRS, along with any appraisals that must accompany your return. These may seem like minor aspects of preserving a deduction for your charitable largesse, but they will become major stumbling blocks if you omit them from your records or income tax return. For instance, did you know that charitable organizations are not permitted to perform qualified appraisals for property they receive? Or that you cannot take a charitable deduction for an appraisal fee, though the fee may be deductible as a miscellaneous itemized deduction? There is more guidance concerning the rules around appraisals here.
3. Don’t be afraid to ask for help. Cash is relatively simple to substantiate, because valuation is straightforward. But property can have complicating factors: basis, capital gains, depreciation, and fair market value, among others. If you are unsure about a nuance in substantiation, definitely take the time to do a little research. Or make it easier on yourself by asking a professional advisor for assistance. Being cavalier about the documentation will only open you up to a potential challenge by the IRS, which is never a good thing. You will preserve the value and spirit of your charitable contributions if you can stay smart, diligent and thorough with your substantiation, at gift time and at tax time.
Julia Satti Cosentino is a partner in Nutter's Private Client Department and co-chair of the Nonprofit and Social Impact practice group. She is experienced in complex estate planning, tax planning, probate and trust ...
John A. McBrine is a partner in Nutter’s Private Client Department and a member of the Nonprofit and Social Impact practice group. Families and individuals rely on John to help them achieve a broad range of estate planning goals ...
In this philanthropic blog, the experienced attorneys in Nutter's Private Client and Nonprofit and Social Impact groups offer news and insights for individuals, couples and multi-generational families who are looking to convey wealth (and its responsibilities) to children and grandchildren, make a philanthropic impact in the community and prepare for the life events we all can face.
- Editor in Chief, Co-Chair, Nonprofit and Social Impact practice group
- Chair, Tax Department and Co-Chair, Nonprofit and Social Impact practice group