2

Certain charities operate retail stores which take donations of goods (i.e., used clothes) and also sell merchandise to the public.

Let's say I donate $100 of items to such a charity. At some other time I also spend $100 on items in the shop. Can I now use the gross $200 which I've given them as a potential tax deduction?

If its not clear why that seems problematic, take a slightly different scenario. Say I bring them $100 of clothes and then I immediately purchase back the exact same items. They have received from me a net of $100, but have I made $200 in charitable deductions? This seems like it could be considered fraudulent.

(If that were allowed, wouldn't it be the equivalent of giving them five twenties in one transaction, and then asking them to break a $100 bill into $20s the next?)

Stores which fall into this could be for example: Habitat for Humanity Restore, Salvation Army, etc.

I'm in the USA, but answers for other countries could be useful as well if they also offer similar tax benefits for charitable donations.

Just for clarity I'm not asking about how to establish the monetary value of physical goods; there seem to be other questions on that topic.

Improve this question
0

2 Answers 2

Reset to default
16

Can I now use the gross $200 which I've given them as a potential tax deduction?

No, the charitable contribution was the $100 worth of clothes you donated. Purchases at these stores aren't tax-deductible. When you get something of value in return for a donation it decreases the amount of your charitable contribution.

Another example would be a charitable dinner for a tax-exempt organization. You pay $500 for a pair of tickets to the dinner. The entire $500 is not deductible; you have to exclude the value of the dinner to determine your charitable contribution. Some organizations will provide you with a number up front, but if not you'd have to make a good-faith estimate.

IRS Publication 526 provides guidance on what you can/can't deduct as well as how your received benefit affects charitable contributions:

If you receive a benefit as a result of making a contribution to a qualified organization, you can deduct only the amount of your contribution that is more than the value of the benefit you receive.
...
If you pay more than fair market value to a qualified organization for goods or services, the excess may be a charitable contribution. For the excess amount to qualify, you must pay it with the intent to make a charitable contribution

Improve this answer
0
12

When you donate an item, you can deduct the amount that you could have sold the item for on the open market. For instance if you donate an '83 Chrysler LeBaron, you cannot deduct the $11,800 sticker price, but the $200 "guy on Craigslist will pay that" price. Or arguably, the $900 "State smog buy-back program will pay that" price, but that argument is between you and the IRS.

So if you could seriously get $100 for the items you donated, then you can deduct $100.

Let's say it's the Habitat for Humanity Store and I donate 75 120mm square junction boxes, a bit rusted. I claim $100 donation, that's fair. I cannot claim the $3/box my electrical supply charges for new ones, nor the $7/box Home Depot charges for new ones.

Something interesting happens with appreciated assets. Your charitable deduction is the appreciated cash value at the time you donate it. But you didn't sell it, so you don't pay capital gains tax. The charity sells it, paying capital gains at their tax rate of zero percent. So don't sell things and donate the cash. Donate the things. Your charity probably can't handle that, so donate it to a donor-advised fund (DAF), then 'advise' the DAF to support your charity with the proceeds. The DAF has an office of people that do nothing but liquidate "things".

Separately, the purchase.

You can take a tax deduction for the value you pay for an item over and above its fair market price.

Suppose back at the Habitat for Humanity Store, I buy a $300 chandelier for $100. No tax deduction for me! It is not tax deductible merely by being a retail sale from a nonprofit. If that were the case, lots of nonprofits would own car dealerships!

Instead, suppose I buy 250 plain receptacles for $1 each. The things sell for 60 cents at Home Depot and accordingly, I haggle them down to $150. But I like HfH so I agree to pay $250 anyway. If I can get them to write it up as $150 purchase $100 donation", I can deduct the $100.

Purchases as part of donations.

I make a $300 donation to PBS, and get apocryphal PBS Tote Bag and Mug, the station's newsletter, a $12 ticket to a PBS-run bluegrass concert, and a Blu-Ray box-set of Downton Abbey.

  • IRS has special rules for branded "swag" like the tote bag, T-shirts etc. Those do not count at all against your donation.
  • IRS also exempts newsletters that are not "like a professionally edited magazine" and don't have ads.
  • Charity-related event tickets, as givebacks, are also exempted. Sporting events are not.
  • The fair value of the box-set, $100, must be excluded from my donation.
  • Deductible donation $200.
Improve this answer

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .