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A new refugee resettlement charity had only just begun operating when its director realized something: She wasn\u2019t sure how to value the many donations of clothing and household goods community members had dropped off. Was value simply the price her not-for-profit would charge if it sold the goods in a rummage sale or on an auction website?<\/p>\n
Even established organizations may not know what value to assign tangible property donations \u2014 particularly if they don\u2019t receive them very often. Here\u2019s a quick rundown for startup and long-operating nonprofits\u00a0alike.<\/p>\n
Defining FMV<\/strong><\/p>\n Assuming the property is related to the charity\u2019s tax-exempt function, most tangible property donations are valued based on fair market value (FMV) \u2014 generally, the price that property would sell for on the open market. For example, if a donor contributes used clothes for a charity to distribute to refugees, the FMV would be the price that typical buyers pay for clothes of the same age, condition, style and\u00a0use.<\/p>\n However, if the donated property is subject to any type of restriction on use, the FMV must reflect it. So, if a donor stipulates that a painting must be displayed, not sold, that restriction affects its value. Restrictions on the use of real estate can dramatically affect the value of such gifts \u2014 for example, land that isn\u2019t eligible for commercial development.<\/p>\n Relevant factors and exceptions<\/strong><\/p>\n There are three particularly relevant FMV factors. The first is the cost or selling price. This is the amount the donor paid for the item or the actual selling price received by your organization. But because market conditions can change, the cost or price becomes less important the further in time the purchase or sale was from the contribution date.<\/p>\n Another factor is comparable sales, or the sales price of property similar to the donated property. The IRS may give more or less weight to a comparable sale depending on\u00a0the:<\/p>\n Finally, there\u2019s replacement cost. FMV should consider the cost of buying or creating property similar to the donated item. However, the replacement cost must have a reasonable relationship with the\u00a0FMV.<\/p>\n There are exceptions. Businesses that contribute inventory can usually deduct only the smaller of the inventory\u2019s FMV on the day of the contribution or the inventory\u2019s \u201cbasis.\u201d The basis is any cost incurred for the inventory in an earlier year that the business would otherwise include in its opening inventory for the year of the contribution. If the cost of donated inventory isn\u2019t included in the opening inventory, its basis is zero and the business can\u2019t claim a deduction. Also know that with certain large donations of tangible property the donor is required to meet additional IRS requirements regarding value to claim a tax deduction.<\/p>\n Contact us<\/strong><\/p>\n Understanding the value of tangible property donations is critical to preparing accurate financial statements. Donors will also generally need this information for their tax records, so be sure to include the value of donations in your donation acknowledgement letters. Contact us if you need\u00a0help.<\/p>\n \u00a9 2023<\/em><\/p>\n <\/body> A new refugee resettlement charity had only just begun operating when its director realized something: She wasn\u2019t sure how to value the many donations of clothing and household goods community members had dropped off. Was value simply the price her not-for-profit would charge if it sold the goods in a rummage sale or on an […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,10,15],"tags":[8,11,12],"class_list":["post-16491","post","type-post","status-publish","format-standard","hentry","category-articles","category-news","category-not-for-profit","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16491","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=16491"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16491\/revisions"}],"predecessor-version":[{"id":16492,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16491\/revisions\/16492"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=16491"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=16491"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=16491"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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