Q: A businesswoman in our church wants to donate several computers to our church. She sells computers and the donation would come from her inventory. If she gives the computers to us, can she claim a charitable deduction for the retail price of each computer?
A: While churches often receive contributions via cash, check, or online giving, churches may also receive in-kind donations of goods and services. Acknowledging a donor’s generous contribution is an important step in developing an ongoing relationship, and providing a donation receipt that complies with IRS requirements is equally important if the donor expects to receive charitable giving credit on their tax return.
Contribution Receipt
When providing a contribution receipt for a gift in kind, or noncash donation like jewelry or computers, the church should include a description of the item, but shouldn’t assign a value to the donated item. Assigning value is the responsibility of the donor.
If the donor values the gift at more than $500, the donor will need to complete IRS Form 8283 (Noncash Charitable Contributions).
If the donor values the gift at more than $5,000, there are additional requirements for the donor. The donor must obtain an appraisal of the donated property from a qualified appraiser and complete the qualified appraisal summary, which is Section B of Form 8283. A church representative will also need to complete and sign Part IV of Form 8283 for the donor.
Further, if the church sells, exchanges, or disposes of the donated property within 3 years, the church will need to file Form 8282 (Donee Information Return) with the IRS and provide a copy to the donor.
For individual taxpayers, the completed Form 8283 is then included with the donor’s Form 1040 on which the charitable contribution deduction is claimed. As a benefit to donors, churches may want to give copies of IRS Form 8283 to donors when the value of the in-kind donation is estimated to exceed $500.
Assigning Value
For many donors, they will be able to assess the value of their donated goods at fair market value. But there are different rules for an individual that donates inventory. According to IRS Publication 526, Charitable Contributions, while most donors can claim fair market value for donated items, an individual that donates inventory can only claim the lessor of its fair market value on the day it was contributed or its cost basis. Specifically, Publication 526 says,
“If you contribute inventory (property you sell in the course of your business), the amount you can deduct is the smaller of its fair market value on the day you contributed it or its basis.”
Further, the Publication provides additional information on how to compute the cost basis for inventory held less than 1 year, and more than 1 year. For example,
“The basis of contributed inventory is any cost incurred for the inventory in an earlier year that you would otherwise include in your opening inventory for the year of the contribution. You must remove the amount of your charitable contribution deduction from your opening inventory. It isn’t part of the cost of goods sold. If the cost of donated inventory isn’t included in your opening inventory, the inventory’s basis is zero and you can’t claim a charitable contribution deduction. Treat the inventory’s cost as you would ordinarily treat it under your method of accounting. For example, include the purchase price of inventory bought and donated in the same year in the cost of goods sold for that year.”
For the original question cited above, if the donor contributes computers from their business inventory, the donor can only claim the lessor of the fair market value or the inventory’s cost basis.
Additional Resources:
This information is just a summary of the IRS’s rules on charitable contributions. Due to the complexity of this topic—especially if the business is a corporation—and required forms and disclosure, you may want to consult a local tax accountant for further help.
