That spring cleaning your clients put off until the summer is a good opportunity to sort through belongings that are cluttering up their basement or garage and to consider the tax benefits of charitable donations of this property.
Instead of putting items in good condition out with the trash, they should consider donating them to a qualified charitable organization. If they itemize their deductions for 2018, these contributions can reduce their annual tax bill without costing anything extra other than a little sweat and toil.
The new Tax Cuts and Jobs Act (TCJA) reduces or eliminates certain itemized deductions while effectively doubling the standard deduction to $12,000 for single filers and $24,000 for joint filers. So, some taxpayers who itemized in the past will be claiming the standard deduction for the first time in a long time in 2018. This change is expected to discourage gifts of property to charity, but it remains to be seen.
At least, if you expect to itemize deductions this year – for instance, due to a substantial mortgage interest deduction – the TCJA doesn’t touch the tax break for charitable donations of property. As before, your deductions can’t exceed 30 percent of your adjusted gross income (AGI), but any excess above the 30 percent-of-AGI mark is carried forward for up to five years.
How much can you deduct? Generally, the deduction amount for used property is based on the property’s fair market value (FMV) at the time of the contribution. Don’t expect to get a windfall for clothing that has been worn or household goods showing a little wear and tear.
For example, if you paid $250 for a suit five years ago, you can’t claim a $200 deduction. The value is probably closer to $50. Be aware that the IRS may dispute valuations that it thinks are inflated.
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Finally, for donations of high-priced property that is in mint condition, you might take a more aggressive stance than simply using the figures stated in an online guide. Of course, if property worth more than $5,000, like a family heirloom or other collectible, they should have it appraised by an independent professional.
About Ken Berry
Ken Berry, Esq., is a nationally known writer and editor specializing in tax, financial, and legal matters. During his long career, he has served as managing editor of a publisher of content-based marketing tools and vice president of an online continuing education company. As a freelance writer, Ken has authored thousands of articles for a wide variety of newsletters, magazines, and other periodicals.