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Keep Records for Tax Breaks on Property Donations

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In a recent case, the tax court denied a deduction for a property donation because the taxpayer hadn't kept proper records. Attorney Ken Berry explains the substantiation requirements a party must meet to get a charitable deduction approved by the IRS.

Jun 3rd 2022
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A taxpayer can benefit from an enhanced deduction by donating appreciated property to charity; however, in a recent Tax Court case, Albrech, TC Memo 2022-53, 5/25/22, the Court held that a person must meet strict substantiation requirements to secure this tax break.

Basic premise: If you donate property that you acquired within the last year, you can only deduct your basis in the property (normally, the amount paid for it). Conversely, if the property would have qualified for long-term capital gain if you had sold it instead (i.e., you’ve owned it for more than one year), you may deduct the property’s fair market value (FMV) on the date of the donation.

For example, if you donate stock bought five years ago for $2,500 that’s now worth $10,000, you can deduct $10,000. The $7,500 of appreciation in value remains untaxed forever.

The tax law limits your current deduction for charitable gifts of property to 30 percent of your adjusted gross income (AGI) for the year. Any excess is carried forward for up to five years.

Caution: The IRS won’t simply accept your word on large donations. To claim a deduction of $250 or more, you must obtain a contemporaneous written acknowledgement (CWA) including the following information:

  • Name of the organization;
  • Amount of cash contribution;
  • Description of non-cash contribution;
  • Statement that no goods or services were provided by the organization;
  • Description and good faith estimate of the value of goods or services, if any, that the organization provided in return for the contribution; and
  • Statement that goods or services, if any, that the organization provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case.

Facts of the new case: In 2014, a taxpayer donated approximately 120 items from a collection of Native American artifacts to a museum. Pursuant to this gift, the taxpayer executed a five-page deed detailing important information.

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