November 29, 2017 10:37 pm

Donations of Household Items Required Recordkeeping

During the year, but particularly at holiday time, many individuals donate unused clothing and household items to Goodwill, the Salvation Army, and other organizations running thrift shops or helping the needing. Donations to these organizations are tax deductible, but only if certain conditions are met:

  • Condition. No deduction can be claimed unless items are in “good used condition or better.”
  • Substantiation. The donor must receive a written acknowledgment from the charity and meet other substantiation requirements.

One recent case shows you what not to do. A couple donated more than 20,000 distinct items of clothing, shoes, furniture, books, and other household items to Goodwill. They received receipts from the organization showing that a donation was made on a particular date. But the receipts had nothing else; they did not itemize the items donated, indicate the condition of the items or what their value was and how value was determined, or what they cost. The couple used Intuit’s “ItsDeductible” program to prepare a spreadsheet and claimed a deduction of more than $145,000 for items supposedly costing nearly $300,000.

The Tax Court denied their deduction (Mark Robert Ohde, TC Memo 2017-137) for several reasons:

  • The spreadsheet wasn’t prepared contemporaneously with the donation.
  • They didn’t obtain a qualified appraisal, which is required when a property donation exceeds $5,000.
  • Their testimony in support of their deduction wasn’t credible.

Bottom line: Generosity is admirable, but a tax deduction depends on satisfying strict substantiation rules.

advertisement
Tax Glossary

Lump-sum distribution

Payments within one tax year of the entire amount due to a participant in a qualified retirement plan. Qualifying lump sums may be directly rolled over tax free, or, in some cases, are eligible for current tax under a favorable averaging method.

More terms