It’s Memorial Day weekend – the beginning of summer! If giving the junk in your house to a charity is on your summer to-do list, be sure to read this blog!
In case you haven’t heard, the IRS tightened the rope on the type of stuff you can give to a charity and get a deduction. After August 17, 2006, you can’t claim a donation on household goods and clothing unless those items are in “good used condition or better.”
In prior years, it was not unusual for some of us taxpayers to throw old clothes into a trash bag and take it to our favorite charity. When it came time to decide the value of that bag of clothes, we guesstimated the original purchase price and multiplied it by a percentage, like 20% and called it “fair market value.” That’s the amount we deducted on our Schedule A.
Well, times have changed. The IRS just released Publication 561; it has 15 pages that discuss “determining the value of donated property.” It reminds us that used household goods (such as furniture, appliances and linens) may have little or no market value because of their worn condition. It also talks about used clothing have little, if any value, if out of style. And if an item has no market value, you don’t get a deduction for its donation. Also, the IRS advises that valuating an item under a fixed formula (percentage of original price) doesn’t usually work well.
So what’s the best way to determine the value? Publication 561 talks about comparing the current prices of similar items at your local consignment or thrift shops.
Be sure to check out TurboTax’s ItsDeductible to help you determine the value of typical items given to charity. Some folks are suggesting that you take pictures of the items that you are donating so if the IRS questions the value, you’ll have some back-up.
One other note: charities say that they toss anywhere from 5% to 10% of clothing and household goods received.
So when it comes time to take your stuff to your local charity, remember that both your charity and the IRS do not want you donating items of little or no worth. For those items “of worth” that you donate, take pictures of the items, check out TurboTax’s ItsDeductible for the value, and don’t forget to get that charity’s receipt.
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