3 Things You Need to Know About Donating a Property

Photo by Markus Winkler on Unsplash

With the tax season around the corner, many of you may be considering to donate a property, which is tax-deductible, to a relevant institution.

If you had never before made a noncash charitable contribution, you should know the following.

1. Related Use

Whether it is an art, books, cars, or a farm equipment, you'd be surprised how many people assume that a donee––an organization receiving the gift–– wants the donation and would use it as intended. If you're gifting rare and valuable American fiction to a university, for example, check with the English Literature department on how they'd benefit from your donation.

Your gift must be relevant to the organization. And, the higher the value of your donation, the more IRS will scrutinize your case. What happens if IRS decides that your donation doesn't satisfy related use rule?

At best, you may claim the costs of acquiring your objects, which could've been a long time ago and at low prices.

My suggestion: get a written letter from the donee on how they would benefit from your gift. Attach that letter (it can be a printed email with an electronic signature) to the Noncash Charitable Contributions Form 8283.

2. When to fill out Noncash Charitable Contributions Form 8283

The first page of the form is used to reflect the gifts' amounts. Section A for $5,000 and less; Section B for over $5,000.

Generally, if you're donating a property that is over $5,000 in value, you must complete 8283 form and attach the form to your tax return––use Section B.

If you're claiming deduction of many smaller gifts, and which amount to over $5,000 value, I'd still suggest filling out the 8283 form, Section A.

If you're donating to several organizations, you must fill out and attach to your tax return a separate 8283 form for each donee. 

If you're donating art objects, the IRS prefers that you list them by medium and not by the artist. Group your paintings together, oils first, then acrylics, then watercolors, gouache, and pastels. Your next listings will be sculptures; then prints––etchings, lithographs, woodcuts, linocuts, then photographic prints.

My suggestion: if you have various, unrelated to each other items, regardless whether they're art or farm equipment, list each type of object in a separate form. Same goes for the groupings. For example, if you have two similar cars––both in type and value––that you wish to donate to an animal shelter, list both vehicles in one form. Use as many 8283s as you need to list your donations in an orderly and clear fashion.

And, if you're donating different things to different charities, then make separate stacks of 8283s for each charity.

Resources: the 8283 form; the instructions to 8283 form

3. Fair Market Value

In your 8283 forms, you must report your donations using Fair Market Values. According to IRS, "fair market value (FMV) is the price that property would sell for on the open market." Which is an auction market.

Perhaps, you know how much your donated items are worth––because you work in that market or you follow it closely. But if you don't and may need to do some valuation research using various auction sources (which is my next appraisal article), IRS requires that your values are current and they must contain buyer's fees (or buyer's premiums).

Buyer's fees vary from auction to auction. Generally, it's anywhere from 5% (for a high-priced objects) to 23% that is added to a hammer price (when an auctioneer's gavel strikes a sound block).

How do you know which percentage to use?

Find an auction venue that sells similar objects to the ones you're gifting. Call them or learn from their website what their buyer's fees are. Use that percentage to figure out a final FMV.

For example, if the hammer price was a thousand dollars and the buyer's fees at that auction is 18%, then the final fair market value is $1,180. Or, $1,000 x .18 = $1,180

My suggestion: keep records of how you figured out your values and which auctions you looked at.

If you're researching art, there are several online databases to which you can subscribe to for a month or longer to do your research. Below is a copy of a record from Askart price database, where the reported sales prices already include buyer's fees.

But if you're using your own values, again, remember to add buyer's fees to your numbers.

Resources: IRS Publication 561: Determining the Value of Donated Property

Yours truly,
Aida