When you donate goods to a worthy cause, you get the satisfaction of knowing you're helping others in need. If you made your donation to a qualifying charitable organization, you might also get to deduct the value of those items from your taxes. Before you can write those items off, you have to determine their fair market value, which can be a challenge since there's no set formula to follow.
Fair Market Value
You typically can't deduct the retail price of donated goods. The Internal Revenue Service allows you to write off only the items' fair market value, based on a quite specific definition. It's the price a willing buyer would pay for the item on the open market if he knew all the facts about the item and acted without compulsion. This definition assumes the seller is willing to part with the item for that price.`
Value Assigned by Receiving Organization
Some major charitable organizations, such as Goodwill Industries and the Salvation Army, provide guidance on the fair market value of many items, including clothing, small and large appliances, furniture and household goods. The guidance typically involves a range of values based in part on the condition of the donated goods. For example, the fair market value of a men's jacket donated to the Salvation Army could range from $7.50 to $25 as of 2013.
If you're donating a bag of clothing to a local homeless shelter, using the prices for comparable clothing at a thrift store will likely suffice. But if you plan to donate your rare coin collection or a loose diamond, you probably want to have those items appraised by an expert. Appraisals are typically not required unless the value of your deduction exceeds $5,000. In that case, your appraiser must have expert knowledge in the field and provide a complete report.
Not every donated item fits into a neat box. Sometimes, unusual market circumstances can skew the selling price of an item and might not reflect that item's true fair market value. The item you want to donate might be unusual to the point of there being nothing on the market to compare it to. You might have difficulty determining the authenticity of an item. In these cases, the more information you can get from experts to validate your claim, the more confident you can be of your valuation.
Video of the Day
- Ryan McVay/Photodisc/Getty Images