Placing Value on Donations
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Placing a Value on Donated Goods
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When you donate to charity in the United States, you can claim a tax deduction. That holds true for furniture, clothing and real estate, as well as for cash. Unlike cash donations, you need to place a value for donated goods. While the IRS offers some guidelines, the burden for calculating a realistic figure has been left with the taxpayer.
The key? Set a Fair Market Value, FMV, for the goods you donate. Before filing for a charitable tax deduction for donated property, take a minute to review some methods for determining FMV.
Use Available Online Tools
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The Salvation Army and Goodwill Industries offer online forms to help determine the value of commonly donated goods. In addition, several websites offer interactive calculators for determining FMV. If you use these tools, make sure they have been updated recently to account for changes in IRS guidelines.
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Calculate Current Value
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Determine how much the donation would be worth to the person who eventually uses it. Remember, the quality or original cost of the item may not matter---a simple plywood desk may be worth as much as an oak antique to a person who needs to stuff envelopes. As a rule of thumb, many charities suggest setting the donated value at 15 percent to 25 percent of the original worth.
Use Actual Cost
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Try this method when your purchase of the donated items was fairly close to the time of donation. The time frame must be short enough that no increase or decrease in value takes place. Consider the price you paid and the price most people would pay when using actual cost to determine FMV. If you overpaid, use the general public's price as the FMV. If you bought property at a discount, use the discounted price as the donated value.
Consider Sale of Comparable Properties
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For larger, more expensive items, use the purchase price of similar goods to determine the value of your donation. In this case, the FMV must reflect the price a charity would have to pay to obtain the property, not the actual price you paid. Use this method only if you can document recent prices paid for comparable properties.
Determine Replacement Cost
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How much would it cost you to buy new property to replace the donated items? Use this method only if there is a clear relationship between the replacement cost and how the charity would use it. Again, if the charity needs a cheap desk, the replacement cost of an expensive desk would not apply. You'll also need to factor in wear and tear on the item since purchase, making this one of the most complex methods for determining the value of donated property.
Obtain an Expert Opinion or Appraisal
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Try this method when donating property that may have increased in value, especially real estate or art. If you wish to set an FMV based on an expert's opinion of its current value, you must find a qualified expert, one the IRS would recognize as an authority. Carefully document the appraisal, and find supporting evidence such as sales of similar properties or high demand for the item.
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