Donation Fair Market Values for Tax Deductions
You've just cleaned your house from top to bottom and have bags full of old items ready to donate to charity.With so many different items, you may wonder how you are ever going to calculate your charitable deduction. By familiarizing yourself with a few basic valuation principles, you should be able to come up with a fair estimate pretty quickly.
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Used Cars
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Whenever you donate a used car to a charity, your own reasonable estimate of its worth just won't do. Initially, you must find a reputable price guide. The IRS does not require any specific one, but whichever you choose must base the car's value on the year, make and model of the car, mechanical and body condition and the number of miles on it. Be sure you only reference the private-party prices in your price guide; the IRS will not permit a deduction based on dealership value. Finally, if the charity reports that it sold the car for less than your estimate, you can only deduct the lower sale price.
Used Clothing
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Used clothing is a common deduction, and the IRS allows more flexibility in valuing clothing than it does vehicles. The IRS does warn, however, that you should never determine value based on the price of the clothing in new condition. It suggests you see what other similar clothing sells for at thrift stores. The Salvation Army is a frequent recipient of clothing donations and, as a result, publishes the average prices it receives for various items. Although you don't have to follow this guide, it can certainly be helpful.
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Household Items
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Another common donation is household items. Similar to used clothing, the IRS does not require you to use one valuation method over another. Again, you can determine the value of these items by comparing them to similar items sold in used furniture stores or by other charitable organizations like The Salvation Army or Goodwill. Under no circumstances can you claim a deduction for goods that are in such bad condition or so old as to be unsaleable.
Valuation Penalties
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Although the IRS usually accepts the reasonable values you report on a tax return, it does have the authority to charge stiff penalties if your valuation is unreasonably high. If you claim a deduction for property and report a value that is 150 percent or more than the actual value, a 20 percent penalty will apply. This increases to 40 percent for values you report that are 200 percent or more of the actual value. The IRS calculates the penalty on any income tax you underpay as a result of the inflated value.
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References
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