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When donating a product, does it matter what the original cost of the product was? For example, what if a $1000 product was purchased for $50? I know it's the reasonable market value of the product now, just using that as an example.

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The IRS doesn't care about purchase price of donated items, it's all about fair market value (FMV) at time of donation.

Generally, if the value is over $5,000 you'll need an appraisal, if not, you can determine FMV yourself, using the guidelines set forth in IRS Publication 561

The IRS defines Fair market value as:

Fair market value (FMV) is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts. If you put a restriction on the use of property you donate, the FMV must reflect that restriction

  • Thanks. And is there any sort of annual limit? I'm now able to itemize deductions so it feels like a good time to donate a lot of old stuff but I don't want to hit any caps. Also, my understanding is that large deductions tend to flag audits. Are those audits generally for only the year in question or do they wind up auditing everything from X number of years? I've done nothing knowingly wrong any year, just curious. – iq78 Apr 16 '17 at 13:48
  • Your total charitable deduction can't exceed 50% of your AGI, for the normal Goodwill trips less than $250 in goods the standard slips they provide are adequate with a good faith estimate of FMV. From $250-5,000 (for a single donation/group of related donations) you need one of the form letters they produce indicating the value of the donation, and over $5k you need an appraisal. Here's a more detailed article with some of the issues you can run into: thetaxadviser.com/issues/2016/jan/… – Hart CO Apr 17 '17 at 2:30
  • Thanks! Any feedback on the audit question? – iq78 May 1 '17 at 20:20
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    They can certainly do a multi-year audit, I don't think they'd bother unless there was suspicion of fraud. Just make sure your donations are well-documented, don't commit tax-fraud, and audits shouldn't be a big deal. – Hart CO May 1 '17 at 20:48
  • Thanks. When I last donated to Goodwill (some TVs at a few hundred dollars), they only gave me a paper with their info/signature on it for me to fill out. Was this right? I'm trying to maximize this of course legally. Would anyone be able to help me identify the concerns/forms needed in the following? 1) 70 articles of clothing all in good condition. I use the Goodwill guide & come up with a total value of $300. 2) High end table and chairs that has a brand new retail value of $5,000. It has some scratches and is used so estimated value maybe $2,000. – iq78 Jun 1 '17 at 18:16

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