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What deduction for gift that charity sells for less than value?

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What deduction for gift that charity sells for less than value?

If an individual donates to a charity a product of value that the charity sells at lower than the face value to raise funds, may the donor write off the face value of the product donated?

The general rule is that if an individual donor makes a gift of personal property that a charity does not use in its charitable program, the donor is able to deduct only the lower of the donor’s cost or the fair market value of the item.  Since the charity is selling the property to raise funds, it is not considered to be using the product in its charitable program.   Therefore, the donor can deduct only the donor’s cost or fair market value, whichever is lower.

The IRS does not assume that what the charity sells the item for is necessarily the fair market value of the item, especially if it sells the product at a charity auction where the market exposure is very thin.  The IRS will usually look to the published fair market value of the item, particularly if similar items continue to be sold in the marketplace.  A ticket to a game of your local baseball team that has a face value of $40, for example, would probably be considered as having that value if such tickets are still being sold by the team for $40, even if the team is in last place and season ticket holders would be happy to get $15 if they could sell their seats for that much.  If the donor paid $40 for the ticket, the donor could only deduct the lower of what the donor paid or fair market value, which probably would be considered $40 no matter what the charity sold them for.  If the donor bought the tickets as part of a season ticket program that cost only $37.50 for each ticket, the deduction ¬would be $37.50.  If the team had a sudden change in fortune and whisked through the playoffs to the World Series so that the tickets were selling for $500 each, the donor would still be limited to a $37.50 deduction.

The same rule would apply to a new $1000 laptop computer that the donor bought from the store at a special one-day 15% off sale for $850.  If the donor gave the computer to the charity the next day for it to sell, the deduction would be the $850 cost basis, not its $1000 fair market value. If the donor bought the computer for $1000 but the seller permanently reduced the price to $850, and the donor then gave the computer to the charity, the deduction would be the $850 fair market value, not the $1000 cost basis.  The IRS is not likely to care what the charity got for its sale of the computer.

It might be different if a donor had bought a “Picasso” painting for $1 million and donated it to charity for sale after it was discovered to be a forgery valued by experts at only $10,000.  The IRS would have a serious interest in its then-current fair market value in a case like that (which the donor would have to substantiate with a qualified appraisal), but most cases are not like that.

There are special rules for cars, boats or airplanes, intellectual property, art, business inventory and other types of gifts that don’t seem to be at play here.  Just remember generally, personal property not used in the charity’s program normally justifies a deduction only for the lower of the donor’s cost or fair market value.

Tuesday, August 29, 2023

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