Tax Facts
9060 / How is the value of property donated to charity determined?
Where property other than money is donated to charity, it is necessary to calculate the property’s fair market value in order to determine the amount of the allowable charitable deduction.
As in other circumstances, fair market value for this purpose is “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.”1 The willing buyer has often been viewed as a retail consumer, not a middleman.2 However, there are certain circumstances where the retail consumer is not the proper benchmark. For example, in the case of unset gemstones, the ultimate consumer is generally a jeweler engaged in incorporating the gems into jewelry. Therefore, the fair market value is based on the price that a jeweler would pay a wholesaler to acquire such stones.3
Often, taxpayers rely on expert appraisals in determining the fair market value of property.4 For some gifts to charity, an appraisal is required (see Q 9061). However, the value assigned by an appraiser is not always controlling and the IRS or the Tax Court may consider factors in addition to those considered by the taxpayer’s appraiser(s) which may reduce the value of the gift and, thus, the charitable deduction.5 The IRS has warned taxpayers that some promoters are likely to inflate the value of a charitable deduction for gemstones and lithographs, thus subjecting the taxpayer to higher taxes and possible penalties.6 Earlier case law has indicated that an auction price may be helpful in determining the value of art.7
The taxpayer claiming the charitable deduction has the burden of proof in establishing the fair market value of the property donated.8
Evidence of what an organization is willing to pay for copies of a manuscript may be used by the taxpayer as evidence of the value of the original manuscript, but it is not conclusive.9 Similarly, the price paid by a bankruptcy trustee may provide evidence of the fair market value, but in at least one case, the courts have found that the substantially higher value established by an appraiser was determinative of the property’s value.10
For property that is transferred to a charity and subject to an option to repurchase, fair market value under IRC Section 170 is the value of the property upon the expiration of the option.11
Guidelines for valuing property generally can be found in Revenue Procedure 66-49,12 and Announcement 2001-22.13 See also Crocker v. Commissioner14 (describing the three methods of determining fair market value of commercial real estate: (1) the replacement method, (2) the comparable sales method, and (3) the income capitalization method).
Planning Point: The fair market value of publicly traded securities is equal to the average value of the high and low stock values on the date of delivery of the stock multiplied by the number of shares given to charity. The date of delivery depends on how the stock was delivered: hand delivered, mailed or electronically transferred.
A taxpayer is not entitled to a charitable deduction for a contribution of clothing or a household item unless the property is in good used condition or better. A deduction for a contribution of clothing or a household item may be denied in circumstances where the donated item has minimal monetary value. These rules do not apply to a contribution of a single item if a deduction of more than $500 is claimed and a qualified appraisal is included with the return. Household items include furniture, furnishings, electronics, linens, appliances, and similar items; but not food, art, jewelry, and collections.15
Planning Point: It is a good idea to take photographs of household items prior to donation to document that they are in good used condition or better.
Intellectual property. The American Jobs Creation Act of 2004 (AJCA 2004) provides strict rules for charitable donations of patents and intellectual property.16 For the temporary regulations providing guidance for the filing of information returns by donees relating to qualified intellectual property contributions, see Temporary Treasury Regulation Section 1.6050L-2T; TD 9206;17 and Announcement 2005-49.18
1. Treas. Reg. § 1.170A-1(c); Rev. Rul. 68-69, 1968-1 CB 80.
2. See Goldman v. Comm., 388 F.2d 476 (6th Cir. 1967).
3. Anselmo v. Comm., 80 TC 872 (1983), aff’d, 757 F.2d 1208 (11th Cir. 1985).
4. See Tripp v. Comm., 337 F.2d 432 (7th Cir. 1964); Est. of DeBie v. Comm., 56 TC 876 (1971), acq. 1972-2 CB 1 and 1972-2 CB 2.
5. See Williford v. Comm., TC Memo 1992-450 (involving oversized artwork); Doherty v. Comm., TC Memo 1992-98 (involving artwork of questionable quality and authenticity); Arbini v. Comm., TC Memo 2001-141 (involving newspapers and holding that the appropriate market for purposes of determining the fair market value of the newspapers is the wholesale market).
6. IR 83-89.
7. Mathias v. Comm., 50 TC 994 (1968), acq. 1969-2 CB xxiv. But see McGuire v. Comm., 44 TC 801 (1965), acq. in result 1966-2 CB 6.
8. See Weil v. Comm., TC Memo 1967-78; Schapiro v. Comm., TC Memo 1968-44.
9. Barringer v. Comm., TC Memo 1972-234. See also Kerner v. Comm., TC Memo 1976-12.
10. Herman v. U.S. and Brown v. U.S. (consolidated actions), 99-2 USTC ¶ 50,889 (E.D. Tenn. 1999).
11. TAM 9828001.
12. 1966-2 CB 1257, as modified by Rev. Proc. 96-15, 1996-2 CB 627.
13. 2001-11 IRB 895.
14. TC Memo 1998-204.
15. IRC § 170(f)(16), as added by PPA 2006.
16. See IRC §§ 170(e)(1)(B), 6050L; IRC § 170(m). See also Rev. Rul. 2003-28, 2003-11 IRB 594; Notice 2005-41, 2005-23 IRB 1203; Notice 2004-7, 2004-3 IRB 310; and IRS News Release IR-2003-141 (12-22-2003).
17. 70 Fed. Reg. 29450 (5-23-2005).
18. 2005-29 IRB 119. See also Notice 2005-41, 2005-23 IRB 1203.
As in other circumstances, fair market value for this purpose is “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.”1 The willing buyer has often been viewed as a retail consumer, not a middleman.2 However, there are certain circumstances where the retail consumer is not the proper benchmark. For example, in the case of unset gemstones, the ultimate consumer is generally a jeweler engaged in incorporating the gems into jewelry. Therefore, the fair market value is based on the price that a jeweler would pay a wholesaler to acquire such stones.3
Often, taxpayers rely on expert appraisals in determining the fair market value of property.4 For some gifts to charity, an appraisal is required (see Q 9061). However, the value assigned by an appraiser is not always controlling and the IRS or the Tax Court may consider factors in addition to those considered by the taxpayer’s appraiser(s) which may reduce the value of the gift and, thus, the charitable deduction.5 The IRS has warned taxpayers that some promoters are likely to inflate the value of a charitable deduction for gemstones and lithographs, thus subjecting the taxpayer to higher taxes and possible penalties.6 Earlier case law has indicated that an auction price may be helpful in determining the value of art.7
The taxpayer claiming the charitable deduction has the burden of proof in establishing the fair market value of the property donated.8
Evidence of what an organization is willing to pay for copies of a manuscript may be used by the taxpayer as evidence of the value of the original manuscript, but it is not conclusive.9 Similarly, the price paid by a bankruptcy trustee may provide evidence of the fair market value, but in at least one case, the courts have found that the substantially higher value established by an appraiser was determinative of the property’s value.10
For property that is transferred to a charity and subject to an option to repurchase, fair market value under IRC Section 170 is the value of the property upon the expiration of the option.11
Guidelines for valuing property generally can be found in Revenue Procedure 66-49,12 and Announcement 2001-22.13 See also Crocker v. Commissioner14 (describing the three methods of determining fair market value of commercial real estate: (1) the replacement method, (2) the comparable sales method, and (3) the income capitalization method).
Planning Point: The fair market value of publicly traded securities is equal to the average value of the high and low stock values on the date of delivery of the stock multiplied by the number of shares given to charity. The date of delivery depends on how the stock was delivered: hand delivered, mailed or electronically transferred.
A taxpayer is not entitled to a charitable deduction for a contribution of clothing or a household item unless the property is in good used condition or better. A deduction for a contribution of clothing or a household item may be denied in circumstances where the donated item has minimal monetary value. These rules do not apply to a contribution of a single item if a deduction of more than $500 is claimed and a qualified appraisal is included with the return. Household items include furniture, furnishings, electronics, linens, appliances, and similar items; but not food, art, jewelry, and collections.15
Planning Point: It is a good idea to take photographs of household items prior to donation to document that they are in good used condition or better.
Intellectual property. The American Jobs Creation Act of 2004 (AJCA 2004) provides strict rules for charitable donations of patents and intellectual property.16 For the temporary regulations providing guidance for the filing of information returns by donees relating to qualified intellectual property contributions, see Temporary Treasury Regulation Section 1.6050L-2T; TD 9206;17 and Announcement 2005-49.18
1. Treas. Reg. § 1.170A-1(c); Rev. Rul. 68-69, 1968-1 CB 80.
2. See Goldman v. Comm., 388 F.2d 476 (6th Cir. 1967).
3. Anselmo v. Comm., 80 TC 872 (1983), aff’d, 757 F.2d 1208 (11th Cir. 1985).
4. See Tripp v. Comm., 337 F.2d 432 (7th Cir. 1964); Est. of DeBie v. Comm., 56 TC 876 (1971), acq. 1972-2 CB 1 and 1972-2 CB 2.
5. See Williford v. Comm., TC Memo 1992-450 (involving oversized artwork); Doherty v. Comm., TC Memo 1992-98 (involving artwork of questionable quality and authenticity); Arbini v. Comm., TC Memo 2001-141 (involving newspapers and holding that the appropriate market for purposes of determining the fair market value of the newspapers is the wholesale market).
6. IR 83-89.
7. Mathias v. Comm., 50 TC 994 (1968), acq. 1969-2 CB xxiv. But see McGuire v. Comm., 44 TC 801 (1965), acq. in result 1966-2 CB 6.
8. See Weil v. Comm., TC Memo 1967-78; Schapiro v. Comm., TC Memo 1968-44.
9. Barringer v. Comm., TC Memo 1972-234. See also Kerner v. Comm., TC Memo 1976-12.
10. Herman v. U.S. and Brown v. U.S. (consolidated actions), 99-2 USTC ¶ 50,889 (E.D. Tenn. 1999).
11. TAM 9828001.
12. 1966-2 CB 1257, as modified by Rev. Proc. 96-15, 1996-2 CB 627.
13. 2001-11 IRB 895.
14. TC Memo 1998-204.
15. IRC § 170(f)(16), as added by PPA 2006.
16. See IRC §§ 170(e)(1)(B), 6050L; IRC § 170(m). See also Rev. Rul. 2003-28, 2003-11 IRB 594; Notice 2005-41, 2005-23 IRB 1203; Notice 2004-7, 2004-3 IRB 310; and IRS News Release IR-2003-141 (12-22-2003).
17. 70 Fed. Reg. 29450 (5-23-2005).
18. 2005-29 IRB 119. See also Notice 2005-41, 2005-23 IRB 1203.
Tax Facts Premium Tools
Calculators
100+ calculators specifically designed to help you easily assist clients with specific planning situations and calculations.
Practice Guidance
Designed to help you discover new ways for which to build and maintain client relationships.
Concepts Illustrated
Specifically designed to help you easily assist clients with specific planning situations and calculations.
Tax Facts Archives
Access to the entire library of Tax Facts dating back to 2012 allowing you to look up the exact tax figures from prior years.
Recently Updated Q&As
Updated May 31, 2024
8901 / What are the tax benefits that can be realized by providing employee benefits through a cafeteria plan?
Updated May 20, 2024
8571 / What are the Social Security and Medicare tax rates for traditional employees and employers?