How to Value a Charitable Donation

From LoveToKnow Charity

You'll need to know how to value a charitable donation if you plan on itemizing donations on your annual taxes in an effort to gain a deduction. Be sure to keep accurate documentation of your donations so you will know the approximate value of the donations you gave to charitable organizations.

Keep receipts for your donations.

Value Estimation

It's important to remember that the value of the donated item is not equal to how much money you originally spent on it. Instead, the item is valued at how much it is worth when it is donated. This means that a sweater that was originally purchased for $40 should not be valued at $40 when it is donated a few years later.

Ask yourself how much your item would earn if you were to sell it instead of donating it to a charity. A sofa that would barely fetch $50 if sold locally should not be valued at $300. It's an inflated estimate that is not only inaccurate but is also dishonest.

Charitable Organization Estimation

Most charities – such as Goodwill and the Vietnam Veterans of America – allow donors to make their own estimates as to the value of the items they donate to the cause. Usually a non-profit organization receiving goods for donation will simply hand a receipt to the donor with a blank line for the value of the items. In these instances, it's up to the donor to fill in the blanks for the value.

On the other hand, there are some instances where the charitable organization won't leave it up to you as far as how to value a charitable donation because they will estimate the value for you. For example, most charities that accept automobile donations do not leave the value estimation up to the donor. Instead, they either state a flat rate as the value of the vehicle – commonly $500 – or they will hold off on estimating the value until the vehicle has been sold at auction. For this reason, if your sole purpose for donating a big ticket item to charity is to get a huge tax deduction then you should first find out how the charity places value on donated items.

IRS Regulations Regarding How to Value a Charitable Donation

The Internal Revenue Service has strict guidelines with regards to estimating value for charitable donations. Keep in mind the limits set for deductions before estimating the value of items you donate because while some donations do not require additional IRS forms when requesting a deduction, some amounts will certainly result in extra paperwork.

Amounts of $250 require documentation from the charitable organization.
An IRS Form 8283, Section A is required for charitable donations exceeding $500 that are non-cash donations.
An IRS Form 8283, Section B is required for charitable donations exceeding $5000 that are non-cash donations.

The IRS has special regulations for estimating the value of high-priced items that are donated to charity. For example, objects of art that are valued at less than $5000 require a written appraisal from a qualified professional. Art objects valued over $20,000 must have an appraisal as well as a photograph and detailed description of the object attached to the tax return. Art objects valued over $50,000 require an entirely different process involving requesting a Statement of Value from the IRS (which involves a fee of $2500 for the request) and the art might wind up being examined by an IRS official before the tax deduction is allowed.

Cash

Cash donations generally are much easier to value since the amount you donate is the value of the donation. Stocks, annuities, life insurance and patents are a little more difficult to estimate with regards to the value, but the IRS has regulations in place explaining the value estimation process for donations such as these.

For more information regarding how to value a charitable donation, refer to IRS Publication 561.