Donations of Personal Property

The Federal government encourages donations of property to public, non-profit charities. The same tax deductions are permitted for donations of property as for cash deductions. This is not a tax loophole but a definite recognition on the part of Congress of the importance of such a gift to a qualified, IRS-approved organization. A donor may gift goods and properties directly to Earth Economics.

The Internal Revenue Service distributes several publications to guide the public and their tax advisors in determining the best way to handle their property contributions -- Publication #526, Charitable Contributions, and #561, Determining the Value of Donated Property. Generally you may deduct an amount up to 30% of your adjusted gross income per year; and if your contribution exceeds 30% of your gross income, you may deduct the excess in the five succeeding years until it is utilized. This income tax deduction allows you reduce the "cost" of making the gift. You are taxed on a reduced AGI which results in reduced taxes due, so you free cash that otherwise would have been used to pay the taxes.

If you gift your art, vehicle, real estate, house, or boat, or other tangible goods to a qualified organization, such as Earth Economics, you may generally deduct from your AGI (adjusted gross income) the fair market value at the time of the contribution. It is an IRS requirement that you must have owned the real property for more than a year. If the value of your property is more than $5000, the IRS further requires that it be appraised by an expert in the field related to the property. In publication #561, the IRS suggests using an art or automobile dealer, a real estate appraiser, or marine surveyor and published market guides to help determine the fair market value of your property. If Earth Economics can not use the gifted property, it may choose to sell it. The proceeds from the sale may then be used to fund Earth Economic projects or programs.

Once you have decided to dispose of your property, you must determine which method is the quickest and most financially rewarding -- an outright sale or a qualified donation. In looking at a sale, you must take into consideration all of the expenses you can expect to incur. Real estate property and sales taxes, dockage for a vessel, insurance, repairs, maintenance, mortgage interest, and sales commissions are a few of the expenses to be expected before you sell your property. After you have signed a sales contract and the buyer inspects the property, you will probably incur additional expenses. There are always repair items that need to be corrected after a buyer's survey or inspection; and in most cases the seller ends up paying for these expenses. You need to also realize that the length of time a home, real estate, or a vessel is on the market before it sells is generally several months, or over six months for vessels. With a charitable contribution, all expenses cease the moment the property is donated.

Example: Mr. and Mrs. Jones gift to Earth Economics a vacation cabin they no longer use which originally cost $150,000. Over the years it has appreciated and is now worth $250,000. They get a $250,000. charitable deduction, which represents a tax savings of $87,500. in their 35% tax bracket. Assuming a capital gains tax of 20%, they completely avoid the $20,000. due on the $100,000. the cabin has appreciated. And they no longer have overhead expenses on the property.

A donation is definitely a "win-win proposition" for you!