IRS Publication 561: Determining the Value of Donated Property

To determine the fair market value of donated property, use the price a willing buyer would pay a willing seller on the day you handed the property to the charity, with neither side under pressure and both reasonably informed. That single definition governs every non-cash donation, but the method you use to arrive at the number, the records you keep, and whether you need a professional appraisal all depend on what you gave and how much you claim it’s worth.¹

A forced sale or liquidation price does not count. Condition and location matter: a sofa with torn upholstery is worth less than the same model in good shape. FMV also reflects the property’s highest and best use, not how you happened to use it. A vacant lot you used for storage but that could support a retail building gets valued on the retail potential. And the relevant market is where that type of property normally sells to end buyers, which for most donated goods means retail or resale prices, not wholesale.

Holding Period Can Limit You Before Valuation Even Matters

Before you value anything, check how long you owned it. Property you held for more than one year can generally be deducted at full fair market value. Property you held for one year or less requires you to reduce the deduction by the amount of gain that would have been ordinary income or short-term capital gain had you sold it.² In practice that usually means your deduction is capped at what you paid, not what it’s worth now.

The same reduction applies to long-term property in two situations: when you donate tangible personal property that the charity uses in a way unrelated to its exempt purpose, and when you donate to most private foundations. Give a painting to a hospital that hangs it in the lobby for decoration, rather than to a museum that displays it as part of its collection, and the unrelated-use rule kicks in.

Valuing Specific Types of Property

Publicly Traded Securities

Stock, bonds, and mutual fund shares traded on an established exchange are the easiest to value. FMV is the average of the highest and lowest quoted selling prices on the donation date. Donate on a day the high was $52 and the low was $48, and FMV is $50 a share. If no trades happened that day, take a weighted average of the mean selling prices from the nearest trading days before and after, weighted inversely by how many days separate each from the donation date.³ The closer trading day gets more weight.

Closely held stock is a different problem. You have to analyze the company’s net worth, earning power, and dividend history, then compare against publicly traded companies in the same industry. A qualified appraisal is almost always necessary.

Real Estate

Land and buildings are valued primarily through comparable sales: recent transactions involving similar properties in a similar location, adjusted for differences in size, condition, zoning, and amenities. For commercial or income-producing properties, appraisers supplement comparable sales with the cost approach (replacement cost minus depreciation) and the income approach (capitalizing the rental income stream into present value), then reconcile the three methods to reach FMV.

Household Goods and Clothing

Used household items and clothing must be in good used condition or better, or you cannot deduct them at all.² Worn-out shoes, stained linens, and broken appliances are out. One exception: an item below good used condition can still be deducted if the claimed value exceeds $500 and you obtain a qualified appraisal.⁴

For items that clear the condition threshold, FMV is what buyers actually pay at thrift shops and consignment stores, not what you originally paid.⁴ A dresser you bought for $800 five years ago might sell at a consignment shop for $120. The deduction is $120. Furniture, appliances, electronics, and linens all fall here. Paintings, antiques, gems, and collectible coins do not; they follow the art rules.

Art and Collectibles

Artwork, sculptures, antiques, and historical objects need expert valuation supported by market data. Auction results for works by the same artist or from the same period carry significant weight. Condition, authenticity, and provenance all affect value, and a well-documented chain of ownership can raise it substantially.

If you claim $20,000 or more for a single work of art, you must attach the complete qualified appraisal to your return along with Form 8283.⁴ The IRS may also request a high-resolution photograph.

Vehicles, Boats, and Airplanes

Vehicle donations follow their own rules, and the deduction is often much less than the “Blue Book” figure donors expect. For any donated vehicle with a claimed value over $500, if the charity turns around and sells it without making significant use of it or materially improving it, your deduction is capped at the gross proceeds from that sale, regardless of book value.²

The charity must send you Form 1098-C within 30 days of the sale showing the actual sale price.⁵ You can claim FMV instead of the sale price only if the charity certifies that it used the vehicle in a meaningful way or made material improvements before disposing of it. Without that certification, the auction price is your ceiling. This is where most vehicle donation disappointments come from: a donor expecting a $6,000 deduction for a car the charity sold at auction for $1,200.

Conservation Easements

Donating a conservation easement gives up certain development rights while you keep ownership of the land. The deduction equals the property’s FMV before the easement minus its FMV afterward, commonly called the before-and-after method.⁶ If the easement still permits limited development, the “after” value must account for that remaining potential. Conservation easement deductions receive heavy IRS scrutiny, and inflated “before” or deflated “after” appraisals are a frequent audit target.

Intellectual Property

Patents, copyrights, trademarks, trade secrets, and software follow a two-part deduction structure. The initial deduction is limited to the lesser of FMV or your adjusted basis in the property.⁷ That initial deduction is often modest, especially when the creator donates their own work, because basis is typically just the cost of producing it. Additional deductions are available in later years based on a sliding-scale percentage of the income the charity earns from the property, but only if you notify the charity in writing at the time of contribution that you intend to claim them.²

When You Need a Qualified Appraisal

A qualified appraisal is mandatory whenever you claim a deduction of more than $5,000 for a single item or a group of similar items.² Similar items are aggregated even if donated to different charities, so five paintings by the same artist given to five museums count as one group for the threshold.

Publicly traded securities are exempt from the appraisal requirement unless the total claimed deduction exceeds $500,000.² Vehicles reported on Form 1098-C are also exempt, since the deduction is tied to the sale price.

The appraiser must be independent of both you and the charity and must have verifiable education and experience in valuing the type of property involved. They cannot be the donor, the donee, or anyone related to either party. Timing is strict: the appraisal must be signed and dated no earlier than 60 days before the contribution and no later than the due date (including extensions) of the return on which the deduction is first claimed.⁸ An appraisal completed six months before a December donation is too early. An appraisal obtained after you file is too late.

Documentation the IRS Expects

The burden of proving your valuation is correct falls entirely on you. For any donated property, keep a written record of the charity’s name, the date of donation, a description of the property and its condition, the method you used to determine FMV, and your cost or adjusted basis.

Any single contribution worth $250 or more requires a contemporaneous written acknowledgment from the charity. The acknowledgment must describe the property, state whether the charity provided any goods or services in return, and if so include a good-faith estimate of their value.⁹ Contemporaneous means you have it in hand by the time you file. Requesting the letter in April after filing in February is too late.

When total non-cash contributions exceed $500, file Form 8283 with your return.¹⁰ Section A covers items (or groups of similar items) valued at $5,000 or less and publicly traded securities of any value; you fill it out yourself. Section B covers items over $5,000 that require a qualified appraisal, and both the donee organization and the appraiser must sign it.¹¹ Skipping or botching Form 8283 can cost you the entire deduction. Tax Court cases regularly uphold disallowance on that ground alone, even when the underlying valuation was reasonable.

One thing to know on the back end: if the charity sells or otherwise disposes of the property within three years, it must file Form 8282 with the IRS and send you a copy.¹² That gives the IRS an easy comparison against the value you claimed. A $15,000 deduction for property the charity sold six months later for $3,000 will generate questions.

Penalties for Overvaluing

Valuation errors are not treated as paperwork problems. A substantial valuation misstatement occurs when the value you claim is 150% or more of the correct amount, and the penalty is 20% of the tax underpayment attributable to the overstatement. If the claimed value reaches 200% or more, it becomes a gross valuation misstatement and the penalty doubles to 40%.¹³

Appraisers face their own consequences under IRC 6695A if they prepare an appraisal that results in a substantial or gross misstatement and knew or should have known it would be used on a return.¹⁴ That gives a reputable appraiser a personal stake in getting it right.

You can avoid the penalty by showing reasonable cause and good faith. The strongest defense is genuine reliance on a qualified, independent appraiser after giving them complete and accurate information about the property. Handing an appraiser a target number and asking them to justify it does not qualify.

One Boundary: AGI Limits Cap What You Can Deduct in a Year

Correct valuation is only the first step. An adjusted gross income ceiling limits how much you can actually deduct in a single year, and the limit depends on what you gave and to whom.¹⁵ Non-cash property contributions to public charities are generally capped at 50% of AGI, capital gain property to public charities at 30% of AGI, and capital gain property to private foundations at 20% of AGI. Amounts over the limit carry forward for up to five additional tax years, keeping the same character. A large donation of appreciated real estate may take several years to fully deduct even though the valuation is settled in year one.

1
Internal Revenue Service. IRS Publication 561 – Determining the Value of Donated Property
2
Office of the Law Revision Counsel. 26 USC 170 – Charitable, Etc., Contributions and Gifts
3
eCFR. 26 CFR 20.2031-2 – Valuation of Stocks and Bonds
4
Internal Revenue Service. Publication 561 – Determining the Value of Donated Property
5
Internal Revenue Service. Instructions for Form 1098-C
6
eCFR. 26 CFR 1.170A-14 – Qualified Conservation Contributions
7
Internal Revenue Service. Notice 2005-41 – Guidance Regarding Qualified Intellectual Property Contributions
8
eCFR. 26 CFR 1.170A-17 – Qualified Appraisal and Qualified Appraiser
9
Internal Revenue Service. Charitable Contributions – Written Acknowledgments
10
Internal Revenue Service. Form 8283 – Noncash Charitable Contributions
11
Internal Revenue Service. Instructions for Form 8283 – Noncash Charitable Contributions
12
Internal Revenue Service. About Form 8282 – Donee Information Return
13
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments
14
Internal Revenue Service. Penalties Applicable to Incorrect Appraisals (IRM 20.1.12)
15
Internal Revenue Service. Publication 526 – Charitable Contributions