To encourage contributions, the Internal Revenue Service offers a tax deduction for donations made to qualified charities. A qualified charity is defined as any church, school or hospital as well as any organization operated for charitable, religious or educational purpose. Your donation is deductible up to its current value to the charity. If you donate an asset that has depreciated in value, you can only deduct its current market value and cannot add the depreciation loss to your donation.
Research the current sale price of your asset. If possible, record a sale offer for your asset. You may need this offer to justify the market value of your asset to the IRS.
Subtract all depreciation deductions taken against your asset. This applies to fixed assets that were used in a business, such as cars or equipment. This does not apply to appreciating property like investments. Ignore this step if you never took depreciation deductions against your income.
Compare the depreciated value of your asset to the sale offer for your asset. You must use the lower value for your charitable deduction.
Multiply your adjusted gross income for the year by 30 percent. This is the maximum amount you can deduct from your taxes for donating an asset to charity.
Carry over any excess donation value to your future tax returns. You can apply any excess donations to your tax returns for the next five years.
Consider selling depreciated capital gains assets, such as investments or properties, instead of donating them. You will be able to realize a capital loss to reduce your income as well as donate the cash from the sale to charity. If you simply donated the assets, you would lose the capital loss deduction.
- “Fundamentals of Income Taxation”; James Ivers III et al.; 2010
- Boston.com; The Best Property to Give; Andrew Chan; December 9, 2008
- Consider selling depreciated capital gains assets, such as investments or properties, instead of donating them. You will be able to realize a capital loss to reduce your income as well as donate the cash from the sale to charity. If you simply donated the assets, you would lose the capital loss deduction.
David Rodeck has been writing professionally since 2011. He specializes in insurance, investment management and retirement planning for various websites. He graduated with a Bachelor of Science in economics from McGill University.