Tax Credit Deduction for Designer Clothing Donations
The Internal Revenue Service allows you to deduct the value of designer clothing you donate to a qualified organization during the tax year. However, the tax law does not provide for a charitable contribution tax credit. To qualify for the deduction, the organization to which you donate the clothing must be a legal non-profit entity that does not operate for purposes other than religious, educational, scientific, literary, humanitarian or charitable causes.
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Clothing Donations
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If you donate used designer clothing to a qualified organization, such as a charitable thrift shop, the condition of the clothing must be in at least good condition. This requires that another individual be able to wear the clothes as is without making repairs. If you take a deduction for any single piece of clothing worth $500 or more, the IRS requires you to obtain an appraisal of its value from a third party. You do not include the cost of the appraisal in the deduction amount; however, the fee is separately deductible as a miscellaneous deduction. (See Reference 2)
Clothing Value
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The IRS contends that no standard methodology for valuing clothing exists. It recommends taxpayers reference the prices that other thrift stores and consignment shops charge for similar clothing in comparable condition. However, donating designer clothing may require additional efforts to determine its fair market value since the item may not be commonly found in thrift stores. Regardless of the valuation method you use, the value of used designer clothing never bears a close relationship to the price you pay when new. If any item of designer clothing you donate includes a valuable fur or gown, you must prepare IRS Form 8283 and attach it to the relevant tax return.
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Limitations
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The federal tax law classifies some qualified organizations as "50-percent-limit organizations" If you donate clothing to these organizations during the year, the maximum deduction you can take on the donation is equal to 50 percent of adjusted gross income. Donations to all other qualified organizations are subject to a maximum deduction limitation equal to 30 percent of adjusted gross income. The IRS continuously updates a cumulative list of organizations that qualify for the higher deduction limitation. It may behoove you to reference the publication prior to making the donation to maximize the deduction in the current year. In the event you are unable to do so, amounts not deductible in the current year can reduce income in any of the next five years.
Penalty
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The IRS imposes penalties to deter taxpayers from inflating deductions by assessing erroneous valuations. The IRS can impose a 20 percent penalty on you if you assign a value to the clothing that is 150 percent or more of its actual value. The penalty increases for erroneous values you report that are 200 percent or more of the actual value.
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