The Basis for Donating Inherited Property

Some of a decedent's property might go unclaimed for any number of reasons. The decedent might not have specifically bequeathed an item in his will, leaving its disposition up to the executor of his estate. Absent a taker, the executor might donate it to charity. A beneficiary might receive a certain item that he has no use for, but that others might need. Your tax basis for inherited property only applies to capital gains or losses if, as a beneficiary, you sell the inheritance. If you give it to charity, a whole different set of rules applies.

If you're the executor and you donate property from the decedent's estate, the estate isn't going to receive much benefit tax-wise. You can't itemize the donation on his final personal tax return, nor is it a deduction from the value of his assets for determining whether his estate owes estate taxes. Only one exception exists. If the decedent actually stated in his will that he wanted an item of property donated to a named charity, this is a deduction from his estate for purposes of calculating any estate taxes due.

If you inherit an asset that you can't use or don't want, you can claim a tax deduction if you give it away. You'd have to itemize your deductions to do this, however. Although there's no tax basis in the property for donation purposes, you do have to establish the property's value. Under IRS rules, this is usually the item's value as of the date of the decedent's death. However, the executor might have elected to use a different valuation date for the decedent's assets. If so, you would use whatever value she placed on the property when submitting an inventory of the decedent's assets to the probate court.

Claiming a tax deduction for your donated inheritance often involves a little extra work. If the value is less than $250, you need only get a written receipt from the charity, identifying it and giving the date and a brief description of the item. The same applies to gifts valued at $250 to $500, but this receipt must include mention of whether you received anything in return for the donation and, if so, the value of what you received. It's not necessary to file these receipts with your tax return, but you should keep them on hand in case the IRS questions the donation. Donations valued between $500 and $5,000 also require receipts from the charitable organization, as well as a written explanation as to how and when you came into possession of the property. The applicable date would be the decedent's date of death. You must also note the cost basis, which is the item's value in the executor's inventory to the court. Donations of more than $5,000 require professional appraisals.

If the decedent's estate is probated and the executor submits an asset inventory to the court, you probably won't run into trouble with the IRS regarding the value of your deduction – the inventory backs it up. Otherwise, be wary of assigning more value to a given item than it's honestly worth. If you're donating clothing, furniture or other household items, they must be in good condition. For example, if your uncle's sofa has gone threadbare and one arm is falling off, you can't claim a deduction for it. The IRS is also on the lookout for charitable donations that exceed a reasonable percentage of your income. Even though you inherited the property and did not go out and spend money on it, the IRS computer won't know this when it initially scans your return. The computer might flag your return for an agent to take a closer look at it if the total of your charitable donations is much more than anyone in your income range could be expected to give away.