Giving property to charity? Check the tax rules

Despite other wholesale changes for individuals for 2018 through 2025, the main tax benefits for charitable donations have been preserved. If you expect to itemize this year, you can realize big write-offs, especially for contributing appreciated property to charity.

The lowdown on gifts of property

For starters, you may deduct the current fair market value (FMV) of property if you've owned it for more than a year. Otherwise, the deduction is generally limited to your initial cost. This provides a unique tax opportunity for donating property that has appreciated in value.

For instance, say you own a painting with a FMV value of $15,000 that cost you $5,000 10 years ago. If you donate it to a museum, you can deduct the entire $15,000. There's no tax on the $10,000 of appreciation while you owned the painting — ever!

Other rules

There are special rules that may come into play. For instance, the property must be used to further the charity's tax-exempt mission. So, if the museum displays your painting to the public, you should qualify for a deduction.

And the rules differ slightly for property that has depreciated in value. Accordingly, your deduction is limited to the property's FMV, no matter how long you've owned it.

In Grainger v. Commissioner (TC Memo 2018 ‐ 117), a taxpayer tried an innovative strategy. An avid shopper, she bought clothing items at discounted prices and immediately donated them to charity, claiming a deduction for the full retail price. But the tax court said she could only deduct her actual cost.

Donation reminder checklist

If you decide to donate property to charity, keep these points in mind:

• Make sure the charity uses the property to further its mission.
• Keep detailed records to protect against IRS challenges.
• Obtain written acknowledgements from charities to substantiate deductions.
• Observe other tax return requirements. For instance, an independent appraisal is required for property valued above $5,000.

Call if you have questions about your charitable gifts and how it'll affect your 2018 tax plan.