The most ambitious fundraising effort a nonprofit can undertake is a capital drive to erect a new building or expand an existing facility. Fundraising committees plus lots of volunteers work to drum up cash donations, but when charitable giving is down--due to a stagnant economy--it makes sense to seek in-kind donations of construction items as well. This win-win situation benefits everyone. The charity gets a new structure and you get nice tax write-offs in return for your generosity.
About Taxes and Construction Items
Contractors, manufacturers, retailers and wholesalers frequently donate goods, supplies, machinery and equipment to nonprofits to help finance large-scale capital projects, but in 2011, rules changed when the Treasury Department issued regulations affecting “the tax treatment costs of acquiring, repairing or improving tangible property,” according to Construction Executive Magazine. As a donor, you can still give the aforementioned goods away to your favorite charity and take a tax deduction at year-end, but you may not be able to write off any of the labor you decide to undertake in conjunction with your in-kind contributions.
Even if you have been in the construction business for a short time, you probably have a network of suppliers so you won’t have to jump through too many hoops to determine the fair market value of the items you intend to give away. Ask trades people to assess the FMV of the goods you buy and donate, and you will likely satisfy the Internal Revenue Service mandate that requires all goods donated to causes to be professionally assessed and certified. You may want to survey several sources, such as big-box stores and local suppliers, and average out the pricing so your sourcing consists of multiple professionals.
Add Sales Tax
In addition to the FMV of goods you donate to the nonprofit for the purpose of completing a capital project, you can also expense the sales tax on items you give away. State and local sales taxes are the most often-forgotten write-offs at tax time and all that’s required to back up your tax records are receipts for the goods you donated. Extremely large donations—pricey equipment, furnishings or fixtures needed to complete a capital construction project—can run up big sales tax deductions fast.
Keep Expansive Records
Justifying your philanthropic donations of construction items is important, because the IRS takes a close look at large write-offs based on fair market value standards. Record the date, item, store, retail price and FMV price on a spreadsheet and maintain the receipt file in close proximity to the archive detailing each entry. If you can get the department managers of retail and warehouse stores you patronize to prepare a letter breaking out both wholesale and retail prices of everything from nails to plywood, that’s icing on the cake.
- IRS.gov; Publication 561; What is Fair Market Value (FMV)?
- Construction Executive Magazine: Tax Implications of the New Repair Regulations
- Department of Revenue Washington State; Overview of Taxes that affect the Construction Industry; Construction Activities; Construction Categories for Tax Purposes
- Bankrate.com: Sales tax deduction for home construction
Based in Chicago, Gail Cohen has been a professional writer for more than 30 years. She has authored and co-authored 14 books and penned hundreds of articles in consumer and trade publications, including the Illinois-based "Daily Herald" newspaper. Her newest book, "The Christmas Quilt," was published in December 2011.