Q & A: Will an artist's donation to a church gift store send her to tax hell?
Another excellent question I've received: If a person donates property to a charity, how much can they deduct? The scenario that sparked the ask: an artist donating her art to a church for it to sell. She can deduct the price the art sells for, right?
Wrong!
Artists can only deduct the cost of the items used to create art of their own that they've donated--and if they deducted those items as a business expense, they can't deduct 'em again as a charitable deduction! The same thing goes for donations of personal papers. You also can't deduct the value of your time--for example, I could not deduct the value of free legal consultation to a charity, nor could a carpenter deduct the value of time spent helping to build a house with Habitat for Humanity.
But what about gifts of property more generally? Let's say the church member donated someone else's painting or some jewelry or stock?
The rules can get a bit complex, but we can boil them down to a few core principles:
- If the value of the item is less than or equal to what the item cost, you can deduct the value.
- If the value of the item is more than what the item cost and you've had the item for a year or less, you can deduct the cost but not the increase in value.
- If the value of the item is more than what the item cost and you've had the item for more than a year, you can deduct the full value so long as you and the charity follow certain rules.
What are the rules that apply to the third point? There are a bunch, but I want to highlight a couple in particular that apply to donations of tangible personal property, such as artwork, books, clothes, furniture and cars.
- If the item used for something other than the charity's exempt purpose, you can deduct only the item's cost, not the increase in value.
- If the item is valued at more than $5000 and the charity sells it within three years, the donor will have to pay tax on the previously deducted increase in value IF the charity does not certify on Form 8282 that the item had been put to an exempt use or that the intended exempt use had become impossible or unfeasible. (For a helpful example, click here.)
- Form 1098-C must be filled out for a donation of a car, boat or plane.
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Thanks for this detailed clarification on this rather specific query. The rules of charitable deduction in general seem to resemble an endless flow chart of if/then statements which gets longer as times change!!!
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