How to Depreciate Donated Clothing

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The Internal Revenue Service allows charitable-contribution tax deductions on your federal income tax return, but you can deduct only the fair market value of donated clothing. Fair market value is the amount for which you could resell the clothes in venues such as a consignment shop, a garage sale or an online auction. The value can also be the amount for which the donor charity would resell the clothing in a local thrift shop. The IRS does not provide any further guidance on calculating the reduced, or depreciated, value of donated clothing; the taxpayer must determine the value.

Sort clothing by type and by the age and sex of the wearer. Any clothing from a high-end label or of particular value should be placed in a separate pile.

Set up a spreadsheet listing the types of clothing in a column on the left. For example, list jeans, dress slacks, T-shirts and dresses in sequential rows in the column. Create accompanying columns titled Number, Amount and Total.

Count the number of items in each stack and record the sum for that type of clothing on the spreadsheet under the Number column. List high-value items at the bottom of the spreadsheet in separate rows, providing enough detail to justify the special treatment. For example, a wedding dress, understandably, would be valued more highly than a business dress.

Determine reasonable fair-market values for each type of clothing by referring to outside sources. List the value for each type of clothing under the Amount column. Charities such as Goodwill and the Salvation Army provide donation value guides that provide low and high price-range values; this allow you to take into consideration brands and condition. Examine the prices of similar items in the charity’s thrift store for comparison purposes. Generally, undergarments sell at the lowest prices; coats, men’s suits and evening gowns sell at the highest prices. Children’s clothes have lower values than adult clothing.

Multiply, for each row, the values in the Number and Amount columns. Record the result for each row in the appropriate cell in the Total column. Repeat until you have a Total amount for each row of clothing type.

Add the amounts in the Total column to arrive at the value of your clothing donation. Record this at the bottom of the Total column.

Bundle the clothing and bring it to the designated drop-off area of your local charity.

Get a receipt for your donation. The charity may list only the number of bags received on the receipt.

Attach the receipt to a printout of your spreadsheet. File this with your other year-end tax documentation.

Tips

  • For your donations to qualify for a tax deduction, the clothing must be in good to excellent condition, without holes or stains.

    Per IRS Publication 561, “Determining the Value of Donated Property,” donated clothing is valued much lower than the purchase price. Any difference between the purchase price and the fair market value cannot be deducted.

    If you have clothing items that you feel have appreciated, such as collectible shoes or furs, you must have the items appraised first. Submit with your tax return a completed Form 8283, Noncash Charitable Contributions, which must be signed by the appraiser.

Warnings

  • Per IRS Publication 561, if your charitable contribution totals more than $500 after evaluating for depreciation, you must complete Section A of IRS Form 8283, Noncash Charitable Contributions, when your prepare your tax return.

References

Photo Credits

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