While cash donations are often the first form of giving that comes to mind, there are many other ways to support the charities that you care about through non-cash donations, which can offer unique tax benefits and provide charities with valuable assets. This article will explore the world of non-cash donations, explaining what they are, their benefits, and providing essential tips for making the most of your generosity.
Understanding Non-Cash Donations
Non-cash donations refer to contributions of assets and property, rather than actual cash. These contributions can take a variety of forms, including:
- Tangible Property: This can include items such as furniture, vehicles, clothing, artwork, collectibles, and other tangible items that a charity can make use of or sell.
- Intangible Property: This might include stock, bonds, or other investment assets. These items can be donated without having to go through the hassle of selling them.
- Real Estate: You can donate a house, land, or other property to a qualified charity, and potentially receive a tax deduction.
The Benefits of Non-Cash Donations
There are many reasons to donate non-cash assets to a charity, including:
- Tax Benefits: You may be able to deduct the fair market value of non-cash donations (within certain limits). Always make sure to follow all of the requirements when donating a non-cash item.
- Avoid Capital Gains Tax: Donating appreciated stock can allow you to both deduct the full value of the gift, and avoid paying capital gains tax.
- Support Charities: These non-cash donations can provide a charity with items they can use directly, or sell to support their mission. You are doing more than just offering financial support, you are providing needed items.
Rules for Deducting Non-Cash Donations
There are specific rules and limitations on non-cash donations:
- Fair Market Value: You can deduct the fair market value of your donations at the time you donate the asset. You must ensure you have proper documentation.
- Ordinary Income Property: Donations of items that would be taxed as ordinary income if sold, such as inventory held for less than a year, are generally deducted at cost basis. You cannot claim the fair market value.
- Capital Gain Property: You may be able to deduct the fair market value of an item that would be taxed as capital gains if sold, such as stock held for over a year.
- Appraisals: For certain donations, you must have a qualified appraisal to prove their value. Be sure to understand which items require appraisals.
Specific Types of Non-Cash Donations
Here are more specific things to understand about specific types of assets that you can donate:
- Stock Donations: You can donate appreciated stock that you have held for over a year, and potentially deduct the fair market value, and also avoid capital gains tax on the increased value of the stock.
- Vehicle Donations: You can donate a car, truck, or boat to a charity and deduct either the sales price if the organization sells it, or the fair market value, within certain limitations.
- Real Estate Donations: When donating real estate, you may deduct the fair market value, and may need to obtain a professional appraisal. The process may also be slightly more complex and you should seek guidance from an attorney.
Proper Documentation
To properly deduct non-cash contributions, you must maintain proper records and documentation, so be sure to:
- Obtain Receipts: Secure receipts from the receiving organization. These documents should include details of the donations and the date that you gave.
- Keep Records of Appraisals: If you had a professional appraise a donation, make sure you keep a copy of their documentation of the valuation.
- Document the Fair Market Value: Always document the fair market value of all of your donated items.
Planning Your Future Giving
Non cash donations can also easily be integrated into your long term estate planning strategies. You can donate real estate, stocks, or other valuable assets using a trust, or by designating charities to receive assets in your will.
Wills.com and Your Charitable Legacy
Wills.com can help you create a plan that includes both cash and non-cash donations. Our platform allows you to clearly outline your wishes, and to ensure that your charitable donations and legacy are honored in your estate plan. We also provide a secure digital vault for you to store all of your important documentation. We also provide the option for charities to sign up for Charity Business Accounts to allow them to better manage and understand their supporter’s plans for future giving.
Frequently Asked Questions
- Q: What is the difference between ordinary income property and capital gain property?
- A: Ordinary income property is an asset that you would be taxed at your usual income rate if sold, and capital gain property is taxed at the capital gains tax rate, which is often much lower.
- Q: Is a receipt enough proof for claiming a tax deduction for non-cash items?
- A: Yes, a receipt is necessary, but you must also be able to prove the fair market value of that item. Depending on your gift, you may need a professional appraisal.
- Q: What kind of documentation should I keep for a stock donation?
- A: You should keep records of the date you donated the stock, the quantity of shares, the name of the company, and the fair market value at the time of donation, and also a receipt from the charity.
- Q: Why is it important to have an appraisal for some non-cash donations?
- A: A qualified appraisal is needed when the fair market value of a donated item is not clearly established. You need to have documentation of the value, to claim it on your taxes.
Conclusion
Non-cash donations provide a powerful way to support your favorite charities while also offering you a unique way to reduce your tax burden. By donating assets like stocks, real estate, and other valuables, you can support important causes, reduce your tax burden, and achieve your philanthropic goals, all while doing good in the world. By understanding the rules and nuances of non-cash giving, you can be both strategic and impactful, and make your philanthropy something you can be proud of.
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Disclaimer: This article is for informational purposes only and does not constitute legal advice. For personalized guidance, consult an attorney or visit the Wills.com Learning center.