Tax Benefits of Tidying Up: Noncash charitable contributions
Based on Marie Kondo’s decluttering method and Netflix show, people are donating their belongings, but how does donating noncash items save money on taxes?
Marie Kondo, the bestselling author of The Life-Changing Magic of Tidying Up and Spark Joy, released a popular Netflix series on New Year’s Day 2019. In her books and show, she teaches a trademarked method of decluttering called “the KonMari method” to help people release the things—objects, negative feelings, clutter— creating stress in their lives. Instead, Kondo asks them to choose joy and items that spark joy, giving them a new appreciation for truly cherished things.
But can releasing the clutter also decrease your tax bill? And thereby spark even more joy?
Are charitable donations still deductible?
The short answer is, yes—charitable donations are still deductible when a taxpayer itemizes instead of taking the standard deduction. This includes tax write offs for donations to Goodwill or the Salvation Army after a session of decluttering at home.
Whether charitable donations of unwanted clothing and household goods can be deducted on taxes will largely depend on each person’s individual tax situation. The deduction for charitable donations is an “itemized deduction,” so typically to benefit from the deduction, it’s necessary to have itemized deductions (including state and local taxes, mortgage interest, and charitable donations, among other expenses) that exceed the standard deduction.
Some taxpayers who itemized deductions in the past are finding that the increased federal standard deduction means it no longer benefits them to itemize deductions. For many of those taxpayers, the benefits of getting a large deduction (the higher standard deduction) remain without the need to keep the records for itemized deductions. No recordkeeping means no shoebox of paper clutter waiting for the next round of Kondo-ing.
When to keep records even if claiming the standard deduction
However, there are still many situations where keeping those records for the year would be worthwhile, even in cases where you are not using itemized deductions on the federal return.
Many state returns will allow itemizing even if the federal return does not. Since the state standard deduction is commonly much lower than the federal amount, itemizing on the state return makes sense for many federal standard deduction filers. States that allow taxpayers to itemize when claiming the federal standard deduction include New York and Oregon. Also, there are a few states (such as Ohio) that have no standard deduction.
If the total itemized deductions are close to the standard deduction, one tax planning strategy may include bunching itemized deductions so that most of them occur in the same year. That means getting to work on those closets this year rather than spreading it out. Using this strategy maximizes the benefit of the standard deduction in some years and the itemized deduction in other years. For example, instead of making a $500 noncash charitable donation in December and a $700 donation January, it may make more sense to make a $1,200 one-time noncash donation in either month.
Charitable donations of belongings are still tax deductible, but only if donors itemize and follow the rules
For donors who will benefit more by itemizing deductions, it’s important to know the charitable giving rules for donating belongings.
First, noncash donations (including household items, clothing, and books) are only tax deductible if:
- They are in “good used condition,”
- The donation is made to a qualified U.S. organization, and
- The donor doesn’t specify who the organization should use the item for or how they should use it.
Qualified organizations are not-for-profit groups whose main goal is to foster religion, charity, education, science or literacy, or to prevent cruelty to children or animals. Veterans’ organizations, fraternal societies, and governmental entities also qualify. You can verify that an organization is qualified using the IRS.gov Tax Exempt Organization Search.
The available deduction depends on the kind of property (capital gain or ordinary income)
Most property that will be donated to charity after clean-up, such as books, clothing, furniture or appliances, will have a lower value when it’s donated than when it was purchased. In this case, the charitable deduction is limited to the fair market value (FMV) of the donated property.
FMV is the amount that a ready buyer will pay for an item from a ready seller when they both know everything about that item, similar to how household items are valued, priced, and sold at an estate sale. For example, a lamp that cost $50 when it was originally purchased may have a $5 fair market value when donated.
Different rules apply to property that has increased in value depending on the type of property that it is.
Deduction for certain capital gain property is reduced by amount of long-term capital gain
Capital gain property is property reported as capital gain income if it is sold instead of donated. Examples of capital gain property include: jewelry, coins, and other collections held for investment.
Generally, the allowed deduction for capital gain property is the FMV of the property. However, sometimes the fair market value of the donation is reduced by the amount that would have been long-term capital gain if it was sold at FMV. A reduction is required when the property is:
- Donated to certain private nonoperating foundations,
- Personal property that is used by the charity for a purpose other than the main purpose of the charity or was valued at over $5,000, sold or disposed of in the year donated by the charity, and the charity didn’t certify the exempt use of the item,
- Subject to a higher limit of adjusted gross income (a choice the taxpayer can make), or
- Taxidermy property.
Example: You donate your old childhood baseball card collection to American Red Cross. You paid $7,000 for the cards in this collection, but it now has a $10,000 FMV. Since they do not have much use for this collection as part of their charitable purpose, the Red Cross chooses to immediately sell the collection for $10,000. You can only claim a $7,000 deduction in this case.
Deduction for ordinary income property limited to basis in the item
The deduction for noncash charitable contributions of ordinary income property is usually the basis of the item donated.
Ordinary income property is property that creates ordinary income if it is sold, instead of being taxed at the lower capital gain rate. Examples of ordinary income property include inventory from a business, works of art created by the donor, and capital assets held less than a year. Also included in this category is property used in a business if any gain would have been ordinary income because of depreciation had the property been sold at the time of the donation.
Required receipts and records depend on the total amount of noncash charitable contributions
The records needed for full tax benefits of noncash charitable contributions depends on the total amount of the donor’s contributions for the year. Larger tax deductions for charitable donations of clothing, furniture and other household goods result in more recordkeeping requirements. Keep those records neat and tidy for full tax benefits.
Noncash donations of less than $250
For non-cash donations of under $250, donors should have in their records:
- The name and address of the organization(s) they gave to,
- The date and location of the donation,
- A reasonably detailed description of the items that were donated,
- Basis (cost) and the fair market value of the donated property given at the time of the contribution,
- How the donor determined the FMV,
- Any terms or conditions the donor placed on the property given, and
- A receipt from the organization, unless it’s impractical to get one (such as the donation was left at a drop box).
Noncash donations of $250 to $500
Donors should keep records of everything required for donations of less than $250, and:
- Written acknowledgement of the donation from the charity,
- A description of the property contributed,
- Whether any goods or services were received,
- A description and value estimate of anything received in exchange for the donation.
The donor must receive the written acknowledgement by the time the return is filed or by the due date, including extensions, whichever comes first.
Noncash donations of $501 to $5,000
Records from the two, lower donation categories should be kept, and:
- How the donor acquired the property,
- The approximate acquisition date, and
- The cost or other basis.
Form 8283, Noncash Charitable Contributions, is required to be filed with the donor’s tax return for noncash donations over $500. If donors do not know the basis of the property or the date received, they can include a statement attached to their return explaining why this information is not available and the efforts taken to obtain it. The IRS will determine if the cause of the omission is reasonable.
Noncash donations of over $5,000
If donors claim more than $5,000 for noncash charitable contributions of a group of similar items (such as large tax deductions for donated clothing and other household items) to charity during the year, then they must have the acknowledgement and written records described in the lower donation amounts and a qualified written appraisal of the property from a qualified appraiser. Section B of Form 8283, Noncash Charitable Contributions needs to be completed and signed by a representative of each organization that received the donations.
See IRS Publication 526 for more details on all the rules
To ensure that you understand and maximize the full tax benefits of noncash charitable contributions, donors can find more detailed rules for vehicles, antiques, paintings and other artworks, jewelry, gems and collectibles, and taxidermy in Pub. 526, Charitable Contributions.
Related posts from H&R Block Tax Information Center:
H&R Block tax professionals, click to login to the Tax Research Center.