Claiming Charitable Contribution Deductions

November 2, 2014

For many individual taxpayers, a charitable contribution is a significant deduction on Schedule A, Itemized Deductions. These gifts may be made in the form of money (cash, check, credit card, or payroll deduction) or property (non-cash items). The form of donation and the amount of the donation will generally dictate the required documentation or substantiation that will be required to sustain a donation on Schedule A.

Recently this area has been fairly active in the courts with almost 50 court decisions issued on cases related to charitable giving.

For gifts of money, the current rules have been in place since 1996. There are two categories that monetary gifts fall into and they are determined with each gift transaction. Gifts of less than $250 require the donor to have one of three items of documentation: a cancelled check; a receipt from the donee including the name of the donee, the date of the gift, and the amount of the gift; or any other reliable written record including those same three details. People often ask about using a credit card statement as a written record and generally this will suffice as an other reliable written record. For gifts of $250 or more, the deduction will be allowed providing the donor has a written acknowledgment from the donee organization, which includes the amount, a statement indicating whether any goods or services were received in exchange for the gift, and a description of any goods or services received along with the estimated value. This documentation must be obtained (and retained) contemporaneously, which means the taxpayer must have these items of substantiation in their possession by the date they file their tax return. Most donee organizations are very diligent about providing timely acknowledgments to their donors, but if you are missing such documentation when you assemble your tax information, contact the donee and request a substitute statement. If the substitute statement is a copy of what they originally sent, there should not be any issue, but be careful to watch the date on a new statement relative to the date you file your return. All gifts by cash, check, credit card, or payroll deduction should be reported on Form 1040, Schedule A, line 16.

For noncash charitable contributions (contributions of property) the documentation rules are more detailed and involve four monetary categories. Each category adds more substantiation requirements to qualify for the donation. The four categories are as follows: (1) less than $250, (2) $250 – $500, (3) $500.01 – $5,000, and (4) greater than $5,000.

Noncash donations totaling less than $500 for the tax year are reported on Form 1040, Schedule A, line 17. The recordkeeping necessary to substantiate these donations is as follows:

  • (1) less than $250;
    • obtain a receipt from the donee organization with the following:
      • Name of the donee organization
      • Date and location of the contribution(s)
      • etailed description of the property
    • Taxpayer should create a written record with the following:
      • Fair market value of the donated property at the date of donation
      • Method used to determine the value
      • Cost or other basis
  • (2) between $250 and $500; obtain contemporaneous written acknowledgment from the donee in a manner similar to the requirement for cash donations of more than $250. The documentation should identify the property donated rather than the amount donated.

Noncash donations totaling $500, but not more than $5,000 require the taxpayer to add documentation that describes the manner in which the property was acquired. Also, the cost or other adjusted basis of the property needs to be reported. Both of these additional items along with the six items required in (1) above are reported using Form 8283 – Noncash Charitable Contributions, Section A. and Part I.

All of the noncash charitable contributions discussed above have been described in such a way that each donation to each charitable organization is considered or reported separately. However, the Internal Revenue Code Section 170 and the related regulations provide that “all similar items of property” need to be grouped and their collective value is to be considered against the $5,000 threshold. Similar items of property are items of the same generic category or type, such as coin collections, paintings, books, clothing, jewelry, electronic equipment, or household items. Therefore, if you donate books to the YMCA in March and make additional donations of books to Goodwill in November the two donations must be aggregated to determine if your donations of books exceeds the $5,000 threshold. If your cumulative donations in any category of “similar items of property” exceeds the $5,000 threshold then you must obtain a qualified appraisal to support your deduction. The reporting of donations exceeding $5,000 in fair market value, whether a single item or a group of similar items, is accomplished on Form 8283 in Section B, Parts I-IV. Part I reports “Information on Donated Property” that includes nine items including description, condition, appraised fair market value, date acquired, how acquired, cost or adjusted basis, in the case of a bargain sale – the amount received, amount of deduction, and date of contribution. Part II is also completed by the taxpayer and identifies any items among the donated property that individually are less than $500 in value and requires the signature of the donor. Part III is the Declaration of Appraiser and includes a signature and other identifying/contact information about the appraiser. Finally, Part IV is the Donee Acknowledgment including their signature and contact information.

The two documentation situations to pay close attention to are the contemporaneous donee acknowledgment required when you make a single transaction donation of $250 or greater and the requirement to aggregate all “items of similar property” when determining if the $5,000 noncash contribution threshold has been exceeded.

Make sure to claim the deductions you are entitled to and be sure to collect and retain the appropriate documentation given the type (cash or noncash) and amount of the donation. If you have questions about amounts you can deduct and amounts you cannot deduct consult instructions for Form 1040 Schedule A, instructions for Form 8283, IRS publication 526, (Charitable Contributions), and discuss your specific facts and circumstances with your tax adviser.