Publication 561: Determining the Value of Donated Property

Publication 561, issued by the Internal Revenue Service (IRS), is a valuable resource for taxpayers who donate non-cash assets to qualified charitable organizations. It guides them in determining the fair market value (FMV) of their donations, which is crucial for claiming a charitable contribution deduction on their tax return.

Who Should Use Publication 561?

Taxpayers who donate property (other than cash) to qualified charities.

This includes a wide range of assets like:

  1. Household goods (furniture, appliances, electronics)
  2. Clothing (in good condition)
  3. Jewelry and gems
  4. Art, collectibles, and antiques
  5. Vehicles (cars, boats, airplanes)
  6. Business inventory
  7. Intangible assets (patents, stocks, bonds)

What's the Purpose of Publication 561?

Publication 561 serves two main purposes:

Determining FMV: It outlines the concept of FMV and various methods for estimating the fair market value of donated property. This helps taxpayers accurately report the value of their charitable contributions.

Recordkeeping Requirements: It specifies the type of documentation needed to support the claimed FMV on your tax return. This ensures proper recordkeeping for potential IRS audits.

What is Fair Market Value (FMV)?

Publication 561 defines FMV as the price a willing buyer would pay to a willing seller in an arm's-length transaction, where neither party is under pressure to buy or sell.

How Do I Determine the FMV of My Donation?

The publication outlines three common approaches for estimating FMV:

Comparable Sales Approach: This method involves researching recent sales of similar items in the same geographic area and condition.

Appraisal: For high-value donations (generally exceeding $5,000), obtaining a qualified appraisal from a professional appraiser is recommended.

Non-Cash Charitable Contribution Charts: The IRS provides charts listing the estimated FMV of certain frequently donated items, such as clothing and household goods.

What Documentation Do I Need to Keep?

Publication 561 emphasizes the importance of maintaining proper records for all charitable donations. Here's a breakdown of the documentation needed based on the value of the donation:

Donations Under $250: A written statement from the charity describing the donated item and its condition is sufficient.

Donations Between $250 and $5,000: A detailed receipt from the charity listing the item's description, good faith estimate of the value, and a statement that the goods or services were not received in return for the donation.

Donations Exceeding $5,000: A qualified appraisal report is required.

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