How to Estimate the Cost Basis on Non-Cash Charitable Deductions

When you write a check or contribute to a charity via a credit card, figuring out your cost basis is straightforward. When you donate non-cash items, figuring out the basis is much trickier.

The cost basis for donated items is based on their fair market value at the time of the gift, or the price they could fetch on the open market. If the property is worth less than $5,000, you don’t need to hire an appraiser, but you must do so for big-ticket items. The cost basis for donated clothing, one of the most common types of donations, is based on clothing in good used condition or better, as per the IRS. Many charities specify what they consider acceptable, and clothing that is torn or dirty isn’t a deductible item.

Donating a car to charity requires a bit more documentation unless the car is worth less than $500. For other vehicles, the donation is based on what the charity receives for the car when sold. If the charity made a major repair to the vehicle beyond cleaning and cosmetics, you can deduct the vehicle’s worth at the time of your donation rather than the amount for which the charity eventually sold it. If the charity gives the car directly to a person in need or sells it to a needy individual for far below market value, and it does not go through an auction, you can deduct the fair market value. To do this, the charity must have a purpose of helping the underprivileged.

One of the easiest ways to figure out the donor’s cost or adjusted basis is by using Turbotax for donation valuation. Simply report the condition of the item, and the donation calculator estimates the value based on online auction and thrift store surveys. You can also check eBay and similar sites to see what your donated item is selling for and use that as your basis, but make sure to take a screenshot of the listing for your records. For example, if you buy yourself a new computer and decide to donate your old one, you can’t deduct the original cost, but an auction site will give you a good idea of the item’s value for your cost basis.

Because the Tax Cuts and Jobs Act, signed into law by President Donald J. Trump on December 22, 2017, raises the standard deduction to $12,000 per person, far fewer people will itemize deductions for 2018. While the TCJA does not change the tax deduction for charitable contributions, taxpayers must itemize in order to receive the deduction. It is estimated that the numbers of taxpayers who itemize deductions will fall roughly in half, from 30-to-15 percent. Overall, charities might lose up to $20 billion annually for those who donated primarily to take a tax deduction.

Because the standard deduction for 2017 is $6,370 for singles and $12,700 for married couples filing jointly, more taxpayers will itemize in 2017 than for the following tax year. For many, this may prove the last year they itemize deductions at least until the TCJA expires in 2026.