Gifts of Tangible Personal Property
The term tangible personal property means any property (other than cash, securities and other negotiable instruments, intellectual property, land, or buildings) that can be seen or touched. It includes furniture, books, jewelry, art, collectables, coins, livestock, and automobiles. Charitable gifts of tangible personal property are appropriate ways for a donor to fulfill his or her philanthropic desires, but frequently present special challenges.
Unlike gifts of intangible property, a donor's federal income tax charitable contribution deduction is the lesser of fair market value on the date of the gift, or the donor's basis in the gifted property, generally depending on how the property is to be used by the charitable donee. If gifted personal-use or investment property is to be used in furthering the donee organization's charitable function, the amount of the deduction is fair market value limited to thirty-percent of the donor's adjusted gross income with a five-year carryover for gifts to a public charity, and twenty-percent of AGI for gifts to private foundations. Alternatively, the donor may elect to claim his or her basis in the property as the amount of the gift and increase the deduction limitation to fifty-percent of AGI (thirty-percent if the gift is to a private foundation). If the property will not be used by the organization in its charitable purpose (i.e., the organization will sell the property rather than use it), the amount of the deduction is the lesser of fair market value or donor's basis in the property limited to fifty-percent of the donor's adjusted gross income with a five-year carryover for gifts to a public charity and thirty-percent of AGI for gifts to private foundations. Special rules apply to contribution of:
The fair market value of tangible personal property typically must be supported by independent appraisal for gifts valued in excess of $5,000 ($500 for clothing or household goods not in good used condition or better). The valuation date for determining the donor's charitable deduction is the date on which the charitable donee takes possession of the property. If the gift represents a future interest in the property (the property is used to fund a charitable remainder trust, for example) the charitable deduction is not determined until all intervening interests in that property have expired (sale of the property by the trust, for example).
Special planning may be required in gifting art collections and other collectables to permit the donors' beneficial enjoyment of the property as long as they desire and still receive the desired tax benefits. Retained enjoyment for life may preclude an income tax deduction, for example, since the charitable remainder interest is a future interest and no income tax deduction is allowed until intervening interests have expired. Since capital gains tax on certain collectibles is greater that the tax on other types of investments, lifetime completed gifts of collectibles may produce a greater overall tax savings that gifts of equally valuable investment property.
The rules for deducting gifts of tangible personal property are somewhat more complex than simple contributions of cash. We have assisted donors and their charitable beneficiaries in structuring gifts of this type of property to ensure that all parties receive the maximum benefit from the donation. We can assist you or your organization in structuring gifts of this nature.
©2008 Ronnie C. McClure, PhD, CPA