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I have a couple of questions regarding the charitable donation of a high priced item.

  1. Does the basis have to include what was paid for the item? For example, say you purchased an item two years ago for $200. Either, you got a great deal on it and it really was a $400 item (and held its value) or it increased in value and is now worth $400. How do you determine the value to deduct? Also, does depreciation play into this? What if you were given an item for free and then donate it?
  2. If you have both W2 and 1099 income, how do you determine where to take the deduction? Meaning, what if the item overlaps use or source between your "regular" deductions and your self-employment deductions against the 1099 income?
  • Charitable deductions are on schedule A, only if you itemize, after all income sources are added together: W2 and retirement disability or sick pay, Schedules C,E,F, investments (Schedules B and D), and 'other' like lawsuit non-medical damages or settlements. – dave_thompson_085 Nov 24 '16 at 2:56
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Publication 561 from the Internal Revenue Service seems to suggest that you should use the fair market value. It gives quite extensive guidance on the topic. Here's the link to that publication: https://www.irs.gov/publications/p561/ar02.html

Interestingly, if you had purchased the item from the charity, I know that you could only claim the value of what you paid over the fair market value. I know this because I work for a charity which just did a silent auction and this issue came up.

As for your second question, I don't know. I don't have much experience with tax paperwork. You should consult a licensed tax professional.

I am not an attorney. This is not legal advice. You should consult an attorney who is licensed to practice law in your particular jurisdiction.

  • The value to deduct is what it could be sold for now, at the time you are donating it, in its current condition. If you really aren't sure what value is reasonable, see if you can find a recent sale of the same product on eBay's "completed sales", then adjust for condition and such; by definition, if it sold for $20 in a flea market like eBay, that is a fair market price. So, yes, if it is really worth more now, you can deduct that higher value. The happens quite often when people donate stock -- the donor gets to write off the current value at the time of donation. – keshlam Nov 23 '16 at 14:16
  • p561 tells you how to compute FMV, but that doesn't mean you always get a deduction for FMV; as the Introduction (in the previous webpage ar01) says, that's in p526. And irs.gov/publications/p526/… says that you can only deduct basis for property that would have been ordinary income if it had been sold instead of donated, but FMV for property that would have been capital gain income -- which usually includes @keshlam's case of appreciated stock. There's also an in-between case for food businesses like groceries donating inventory. – dave_thompson_085 Nov 24 '16 at 2:47

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