Determine Fair Market Value of a Charitable Donation
One of the biggest issues when making a charitable donation is assessing your income-tax benefit. The non-profit organization that takes your donation may provide a receipt that has a vague statement about the donated item's worth. You need to find a middle ground when determining fair market value for a charitable donation.
Instructions
Assess the Value of Charitable Donations for Tax Purposes
1. Keep the fair market value of your donations under the original purchase price of each item. Federal law prohibits the use of values in excess of the price of the items if purchased new. Requiring taxpayers to determine values in this way helps to avoid fraudulent claims.
2. Consult with the charity's management to determine the estimated sale or auction price of a particular donation. This step is important if the charity does not end up selling the item.
3. Inspect items that you plan on donating to charitable causes to determine their current condition. You should take a conservative approach when determining depreciation and overall conditions to find a reasonable market value.
4. Call the charity after your items are resold or auctioned off to find the final-sale price. This price supersedes the need to judge fair market value personally.
5. Calculate fair market value for your donated items with improvements and additions in mind. A building on donated property or a new engine in a vehicle should drive up the price, even with depreciation.
6. Snap a few photos of charitable donations to help you prove the legitimacy of your fair market value measurement. You should use a digital camera to take clear photos from all angles of an object as well as interior pictures when necessary. This visual evidence gives you another measure of proof during an IRS or state audit.
7. Retain copies of every document that a charity distributes in regard to your donation. Most charities will offer a simple receipt or letter acknowledging their appreciation for your donation. You need appraisals and sales agreements conducted by the charity before you file a tax return. This will back up your deductions.
Tips Warnings
Obtain an appraisal of your charitable donation from the original seller. Car dealers, landowners and retailers can give you an assessment of your item's current condition, as well as a fair market value based on their experience. You should request this information in writing, along with contact information for the charity in question.
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