How to Determine the Value of Donated Property for Tax Purposes
Donations to charities do not have to be in cash for you to deduct them from your taxes. The Internal Revenue Service allows taxpayers to deduct donations of property but you must determine the value of the property in accordance with IRS guidelines. Typically, you can only take a deduction for property that is in good condition. An exception to this rule is if the property has value because of its age or uniqueness such as with a piece of art. Deductions of $500 or more from a single donation of household items or clothing require an appraisal by a qualified appraiser before the IRS will allow the deduction.
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Instructions
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List any factors that affect the value of the item you are donating. Factors include cost, price of similar items, expert opinions and the cost to replace the item. If you place restrictions on the use of donated property such as a building donated for a library, the assessed value must reflect the restriction. For example, the building might be worth more if turned into apartments, but you cannot deduct the higher value if you specified that the receiver must use it for a library.
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Determine the item's fair market value (FMV). Look at online auctions, classified advertisements and flea markets to discover the selling price of similar merchandise. The FMV is what a buyer would purchase the item for in an open market.
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Obtain a qualified appraisal for donated items of certain value. Hire an appraiser to value works of art or antiques worth more than $5,000. Have any donation of jewelry appraised because of the multitude of factors that affect its value such as style, type of gemstone and current fashions.
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Select the lowest value of the item. For example, if you donate a vehicle, it can have three separate values, retail, trade-in and private party sale. Choose the lowest value of the three to meet government FMV regulations.
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Tips & Warnings
FMV must reflect the value of the donation at the time you donated the item. If the value of the item increases after the date of the donation, you can only deduct what the item was worth when you gave it to the charity.
If you assess the value using the sale price of similar items, you must factor any differences between the comparable items into the valuation. For example, if you donate an item that is in poor condition, you cannot deduct the value of the same item that is in good condition.
The IRS does not consider an appraiser as expert unless he has verifiable experience appraising similar items.
