Other Ways to Give Back
When people think about giving to a charity, they often think in terms of giving back in time or cash. They do not consider alternative forms of giving back that can benefit you and the charity more than cash. Here are some other ways to give back to your favorite charity.
You can deduct the fair market value of land or a building that you donate, as long as you have owned the property for more than a year. Real estate resulting in a capital gain, however, should be treated differently than real estate resulting in a loss. If you have a loss on your property, you are better selling the property and giving the proceeds to charity. That way, you can deduct the loss on your tax return and get the deduction from your gift to charity. If you have significant capital gains on your property, it is better to just give it away. This way you can avoid taxes on the gain and still get a tax write-off for the property's fair market value.
You can deduct the fair market value of a used car to charity. Fair market value is what you could get for your car if you were to sell it at the time of donation. You can use Kelly's Blue Book as a guide to determine your fair market value.
Expensive Art and Collectibles
The amount you can write off for these items depend on the length you have owned them. If you donate an appreciated item that you have owned for a year or less, your deduction is limited to the price you paid for the item. This is regardless of how much the item may have appreciated since you acquired it.
If you have owned the item for greater than a year, you can deduct the fair market value as long as the charity uses the item to further its mission statement. Let's say you have a painting that cost you $5,000 but is now worth $15,000. If you donate the painting to a museum, you can deduct $15,000, but if you donate the painting to a hospital your deduction is limited to $5,000. But even after donation, if the museum sells your painting, you can only deduct $5,000. So make sure you ask the charity for a letter stating that the intended use for the donation will be related to its stated tax-exempt purpose.
If you donate appreciated stock that you have owned for at least a year, you can avoid paying the capital gains tax and sales fees (so the charity will net more money than if you sold the stock, paid the tax and a broker's commission, and sent the charity the difference). Your tax benefit from the donation is increased since you can donate the fair market value of the stock, and the organization will be just as happy to receive the stock.
These are some tax-savvy techniques to give to your favorite charities. Do not wait until the last minute to donate assets if you are planning to give items other than cash or securities. Often the paperwork associated with these donations must be completed by December 31.