You finally got around to donating that old rocking chair or toaster oven, but now you’re wondering how to value it for tax purposes. The IRS allows you to deduct the fair market value for household goods like furniture and appliances, and FMV is defined as the price you could get for the item on the open market. To figure out the FMV for the items you donated, you can look to the cost or actual selling price of the item, sales of the same or similar goods, what it would cost to replace the item or the valuations of experts.
Items Must be in Good Used Condition
Before you get too excited about donating all of your old junk, note that in order to take a deduction, the IRS says that household goods must be in "good used condition or better." This rule was adopted to deter people from donating worthless items for a high deduction. While the IRS does not say exactly what they consider good used condition, some nonprofits like the Salvation Army and Goodwill have guidelines for what they will accept. One exception to this rule is that you can take a deduction for a donated item in poor condition if it is worth more than $500, and you have a qualified appraisal to back up that valuation.
Determining FMV Using Cost of Item or Actual Selling Price
If you donated an item very soon after you bought it, and the market for the item did not change between the sale and the valuation date, you might be able to use the price you paid to figure out the FMV. Similarly, if the organization to which you donated the item sold it very soon thereafter, you might be able to use the price it sold for as the FMV. However, in addition to temporal proximity, the cost or sales price can only be used if both parties to the purchase or sale were acting in their own self-interest, were aware of all relevant facts about the item and were not acting together to inflate the price.
Determining FMV Using Sales of Comparable Items
The most common way to determine FMV is by looking to the sales of similar donated properties. So, if you donate a couch to Goodwill, you could use the sales price of a couch in similar condition that was sold close to the day you made your donation.
Determining FMV Using Replacement Cost
You might also determine FMV by what it would cost to replace the item, accounting for depreciation. For example, if you are donating an old toaster, you would start with the cost of a new toaster of the same make and model, but you must then depreciate for the condition and age of your old toaster.
Determining FMV Using Expert Opinions
If you are donating a rare or collectible item, like an antique rocking chair or valuable work of art, you can enlist an expert to help you determine the FMV. The expert has to be experienced in making valuations of this type, and his opinion must be supported by facts.
- Although you can do your best to determine the fair market value for your used furniture or appliance, finding multiple interested buyers for your merchandise is critical to obtaining the best price. An item is worth only what someone is willing to pay for it. Competition drives the purchase price higher.