Archive for the ‘noncash’ Tag
Back to Basics Part XXIV – Form 8283 – Noncash Charitable Contributions
Filed under: Back to Basics, Charitable Donations | Tags: $5000, 30 percent, 50 percent, appraiser, appreciated securities, Form 8283, household, noncash, Noncash Charitable Contributions
Comments (2) Originally published in the Cedar Street Times
October 2, 2015
The donation of noncash charitable items such as clothing, furniture, toys, books, etc. to thrift shops run by organizations such as Goodwill Industries or The Salvation Army are nearly ubiquitous with people who itemize deductions. We all have stuff we no longer use or enjoy, and in lieu of the effort involved with a garage sale we find it extremely convenient to drop it off or have it picked up, and hopefully get a tax benefit from it as well. Note that as of a few years ago, the IRS requires that the items be in “good” condition or better to get a deduction – so no more deducting your junk!
Noncash donations do not just include household items, but could also include the house itself – real estate! Other examples would be donations of stocks, bonds, vehicles, as well as intangible items such as copyrights or patents. Essentially anything you give to a qualified charitable organization other than money would be a noncash charitable donation. If your aggregate noncash charitable donations for the year are below $500, you can deduct them directly on Schedule A. If they aggregate more than $500, you have to use Form 8283 to report them.
Depending on the type and amount of donation, you may need a qualified appraisal by a licensed appraiser, and you may or may not need to attach it to the tax return. There are also many very specific details about appraisal requirements to review should you be donating a high value item. (My experience has been that licensed appraisers sometime do not even know what the IRS technically requires for certain appraisals.)
For household items, the threshold to require an appraisal is $5,000. Unless you are trendy and have expensive tastes you probably will not have this problem. But people sometimes cleaning out an entire house for a move or after someone passes away could run into this issue. The rub is that it is a cumulative limit through the whole year. So theoretically if you gave away things in the early part of the year, and then do a major clean-out at the end of the year, putting you over the threshold, the IRS would expect you to have an appraisal covering the items you already gave away – good luck!
Knowing this rule, you might plan to split large donations between two tax years instead of giving the items away all at once.
The standard for donation value is generally fair market value at the time of the gift, although there are exceptions to this, especially when you give away things that are worth more than what you paid for them or you are donating depreciable assets. If you give away property, that if sold, would have resulted in ordinary income, such as donating inventory you bought at wholesale or donating self-created works of art, or if you give away a capital asset held for a year or less that would have resulted in a short-term gain, you have to back out the amount that would have been taxable if you had sold it. Essentially you are limited to deducting your adjusted cost basis in the property.
For instance, an artist, cannot paint a painting, donate it, and then take a deduction for the price he or she would have listed it for in a gallery. The deduction is essentially limited to the cost of the canvas and oils, since anything in excess of that would have been ordinary income. Another way to think about this, is that charitable deductions are typically available for donations of after-tax dollars or things purchased with after-tax dollars. The government is essentially rebating you for tax you already paid when you donate to a charity. So if you haven’t ever paid tax on the money, as in the case with the artist, there is no tax to rebate, so no deduction available.
Sometimes you can have your cake and eat it too. If you give away property that would have resulted in a long-term capital gain, you can generally deduct the fair market value in full (such as a piece of jewelry that has appreciated, or appreciated stock held more than a year), but you are subject to a 30 percent limit of your adjusted gross income instead of the normal limitation of 50 percent. Most working-class people are not giving away 30 percent of their adjusted gross incomes every year, so that is a non-issue for most.
However, later in life, people will sometimes give away substantial assets. Since excess charitable contributions can only carry forward for five years, this limit becomes a bigger problem. The IRS allows you to make an election to choose the 50 percent limit instead of the 30 percent limit, but if you do, you give up the ability to deduct it at its fair market value, and are instead limited to the adjusted cost basis. But this can still be useful given the right circumstances. For instance, recently inherited assets that are given away will often have a cost basis similar to the fair market value, so it could be an easy decision to make the election in such a case.
The donation of vehicles was tightened up substantially a few years back after the IRS noticed a huge gap between the aggregate amount of deductions taxpayers were claiming for vehicle donations versus what charities were reporting as received. Now your deduction is limited to the amount the charity actually sells the car for, and you must report specific information from a Form 1098-C which must accompany the tax return. Pretty much the only time you can use a Blue Book price is when the charity uses the vehicle internally, instead of selling it, and you get a certification of this fact.
The Form 8283 is a two page form. Part I of the first page handles most small donations. Part II handles donations when you have attached strings to the donation, such as conditions that must be followed for the donation to be considered complete. Page two handles larger donations which typically require an appraisal. Parts I and II handle the details of the item(s). Part III is a signature block for the appraiser, and Part IV is a signature block for the donee organization.
If you have questions about other schedules or forms in your tax returns, prior articles in our Back to Basics series on personal tax returns are republished on my website at www.tlongcpa.com/blog .
Travis H. Long, CPA, Inc. is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.
Gifts Given and Received – Taxable?
Filed under: General, Trusts and Estates | Tags: $14000, 709, basis, cost basis, estate tax exemption, Form 709, gift, Gift Tax, inherited, lifetime gifting, noncash
Leave a comment Originally published in the Cedar Street Times
December 27, 2013
I remember when I was growing up, every year for Christmas, my grandfather would send a check to my brother and I for $75 each. That seemed like an incredible amount of money to me at the time, and it really boosted my treasury each year! One of those years, I can remember going to the bank with my mom to cash the check, and wanting to see what $75 felt like in my own two hands; I asked the teller to give it to me…all in ones. She smiled, pulled some crisp ones from under her drawer, and counted them out for me. I had never felt a wad of bills like that in my hands! I tried folding them over, but I could not get them all in my pocket it was so thick, so I put them in lengthwise, and they just about stuck out the top of my pants pocket – I was a rich man!
After a week or so, we came back and deposited about half of them back into my bank account. My dad had always encouraged us to save half of whatever we received or earned when we were growing up. I admit, that ratio did not quite remain when I got into high school, and discovered a new and expensive hobby called, girls, but saving was ingrained in me. When I left for college I had a measurable chunk of change in my bank account.
Throughout those years, it never occurred to me to wonder about the tax implications of the gifts I received. Now, however, I think a lot about those things!
I do not know anyone that would hesitate to put a gift of $75 into his or her bank account. But if you throw two or three zeroes on the end, then I definitely get questions from people wondering if it they will have to pay tax. As the recipient of a gift, whether it is $75 or $75 million dollars, you do not have to pay taxes or report the receipt of the gift (with one exception that I can think of to be explained later). If you receive something other than cash, such as stocks, real estate, or tangible property, you could have tax if you sell it. The catch is that when you receive noncash gifts, you also receive the giftor’s cost basis, and when you sell you have taxable gain on the difference between the sales price and the cost basis. For example, if someone gives you a share of stock worth $100, and that person bought it for only $10, you have to pay tax on the $90 gain if you sell it.
If you put yourself in the shoes of the person giving the gift, there are different rules you need to follow. As long as you give less than $14,000 (2013 and 2014) a year in combined cash or noncash items to any one person, you have nothing to worry about, except providing the person evidence of your cost basis if the items are noncash items. (You are doing a disservice if you do not provide proof of cost basis, since the person you give the noncash items to could potentially be held liable for tax on the entire amount of the gift if they sell it, and cannot prove your cost basis – this is often overlooked.) You could give $14,000 to every person on earth each year and not have to file a gift tax return.
If you give $14,001 to just one person, then you have to file a Form 709 United States Gift Tax Return. The portion in excess of $14,000 per person is then subtracted from your combined gift and estate tax exemption (currently $5.25 million and indexed for inflation). For most people this is just an informational filing as they will never reach the limits, but it is required (and limits have gone up and down in the past). If you exceed the limits, however, the person giving the gift has a tax liability at a rate as a high as 40 percent. The only possible time I can think of that the IRS could pursue the recipient of a gift for taxes would be if the giftor gave away so much money that he or she had a tax liability and could not pay it. The IRS in that case, could pursue the person receiving a gift for tax.
Keep in mind that a gift is different from inheriting when someone passes away. You generally do not have tax on inherited amounts either, with the exception of tax liability on any earnings the assets you are entitled to accumulate between the date of the peron’s passing, and the date you receive the property. Your cost basis with inherited assets is also generally more favorable as the cost basis you receive is typically the fair market value at the date the person passed away, and not their old, often lower, cost basis.
Crafty minds will sometimes think of schemes to call income a gift since gifts are not taxable. Be careful of this – substance over form will rule the day. Yes, it would be nice if I would do your tax preparation for free, and you also happen to be kind enough to give me money, but it ain’t gonna fly!
Prior articles are republished on my website at www.tlongcpa.com/blog.
IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.
Travis H. Long, CPA, Inc. Blog 