How to Calculate the Deduction Value of Donated Food

You have to itemize to claim food donation deductions on your taxes.

You have to itemize to claim food donation deductions on your taxes.

To reward you for donating food to charity, the Internal Revenue Service lets you claim a tax deduction. However, to prevent people from buying discounted food and donating it for a tax break, you have to reduce the fair market value by the short-term gains you would have earned if you had sold the food. Short-term gains are those that come from sales of food you've held for less than one year. As a result, unless you're holding the food for more than one year before you donate it, your deduction's going to be limited to what you paid for the food or the fair market value, whatever's smaller.

Calculate the fair market value of the food you're donating. For example, if you donate 100 boxes of cereal that usually sell for $2, the fair market value is $200.

Calculate the amount of short-term gain you would have realized if you sold the food at fair market value instead of donating it. To find the gain, subtract what you paid from the fair market value. For example, if you got the 100 boxes for $0.50 each because of sales or coupons, and you donated them within one year of buying them, your short-term gain would be $150 because you only paid $50 for the cereal. If you held the cereal for more than one year before donating it, none of your gain would be short-term gains.

Subtract the short-term gains, if any, from your basis to find the value of your deduction for donated food. In this example, since the cereal was donated within a year of purchasing it, you'll have to subtract $150 from the fair market value of $200, limiting your deduction to just $50, the same as what you paid for it.


About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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