Donating promotional items with no cost to donor

[NECPA in NEBRASKA]

A client wants to donate several hundred items of jewelry to various museums for the companies that gave them to him over the years. He paid nothing for them so I think that his basis is 0. They have appreciated in value, but I don't know that there is value to anyone but the airplane industry. He says that the museums tell him that he can deduct the FMV, but they won't give him a value. I told him that since he doesn't know what the cost of the jewelry was when given to him, he has no basis at all and there is no charitable deduction available to him even if he gets an appraisal. He believes that they are worth over $5,000. I don't want to miss a deduction to him, but I don't think that even appreciated value will work for him, but I would like to be wrong. Thanks.

[jainen]

>>museums for the companies<<

Assuming the museums are established as private operating foundations under 501( c)(3), (which of course we can't simply assume), FMV is probably allowed according to the rules for donations of appreciated property. See Pub 526 for details. As to what FMV is, I suggest a bit more clarification than "he believes." I wouldn't worry too much about it though, since he's only claiming an average value of ten or twenty dollars. Remind him to take photos and get acknowledgements.

[NECPA in NEBRASKA]

Thank you, Jainen. I did read Pub 526 and 561 and thought that it was too good to be true.

Bonnie

[Kea]

Deduction (if applicable) is lower of FMV at time of donation or his basis. If the items were given to him, his basis is the same as the "givers" -- probably not $0. That may be hard to determine, but since the items have appreciated in value, that is the amount he would need to use.

[SaraEA]

The donor should be able to deduct FMV! See Pub 526 for property that has appreciated in value. There are some restrictions, like if the donor chooses to go with 50% AGI limit instead of 30%. If you could only deduct basis, why would there be so much advice out there to donate, for example, stocks that have gone up? If the amount is over $5k, an appraisal is needed. The donees by law cannot declare a value (which is why all those Goodwill receipts are filled out by the donor).

Say I found in my ancestors' attic an original copy of the Declaration of Independence, given to my Great great great uncle by Thomas Jefferson himself. The house was gifted to the younger generations over the years, so the giftors' bases just passed on to the relatives (no step-up). Now I give that copy to the Smithsonian. Is the value of my gift really zero? I could have sold that copy for millions, so that's what my deduction is worth. Same with your client, provided of course that the museum is a charitable org.

[NECPA in NEBRASKA]

Thanks everyone for the quick answers. He is checking to make sure that they are really 501c(3) organizations. I am hesitant at times, because this client likes to push everything to the max and many times what he thinks is valuable is only valuable to him. I don't know that the stuff has appreciated in value, he just says that they have and he will want to take $4,999 for it. (I just moved my mother and step-father and know that what most of us call trash, he thought was something that we all would cherish.) This client and I have had discussions every year for the last thirty years about what is and what isn't deductible. Gifts to kids and grandkids were not deductible last year and they still aren't this year. I just note everything in the file and he signs the engagement letter. Thanks again.

[Jack from Ohio]

I say simply $0. Costume jewelry. If it were really worth what he considers it to be, he would sell it and give the total amount to the charity. Otherwise, it seems he is just fishing for a large deduction that will truly cost him nothing.

[NECPA in NEBRASKA]

Jack, It's hard for me not to disagree. I love the old gentleman, but I find it hard to believe that there aren't a bunch of these promotional items running around and that this museum doesn't have any of them yet. I told him that I want pictures and the acknowledgements for my file. I think he has watched too many Pawn Stars.