Charitable Donations Explained

Fellow appraisers  Xiliary Twil, ASA sent me this very good article from the Planned Giving Design Center on valuing charitable donations.  It is written by  Russell James III, an attorney and a certified financial planner.

.It is the type of article (and this is only part 1 of 2) that is worth reading and printing as it puts many concepts of charitable donations and the tax code in perspective for donors and for the appraiser.

The below block is only a portion of the article, please follow the source link to view the full article. I plan on printing out and saving a copy.

The Planned Giving Design Center reports

To begin the topic of valuing charitable gifts of property, it is useful to consider why this topic is so important.  As discussed previously, the vast majority of wealth in this country is not held in cash, savings accounts, checking accounts, or money market accounts.  Consequently, if fundraisers wish to ask for gifts of wealth, then, by and large, they must ask for gifts of property.  In other words, if fundraisers want to ask from the “big bucket” of wealth, then they need to ask for gifts of property, meaning any type of non-cash asset.  A fundamental requirement of being able to ask for these property gifts from the “big bucket” is an understanding of how such gifts are valued for tax purposes.  As we will see, this is no small issue.  Different types of assets in different types of transactions may be valued dramatically differently, including a valuation of zero dollars.  In order to be able to learn how to ask from the “big bucket”, it is essential to have a basic understanding of how gifts of property are valued.  A fundraiser or advisor who suggests a charitable gift of property while being unaware that the deduction in that particular case would be far less than the value of the property is creating serious potential problems.  This chapter is intended to eliminate that risk by reviewing the rules for valuing charitable gifts of property.

If you are familiar only with cash gifts to charity, then this issue of valuation may be new to you.  Cash gifts include all cash equivalent transactions such as checks, currency, or credit cards.  Gifts of cash require no valuation.  The value is simply the amount of the gift.  Because the valuation is simple, calculating the deduction is also simple.  Although cash gifts are simple, the bulk of a donor’s wealth is rarely held in cash.  Understanding gifts of non-cash assets opens up the possibility for many more sophisticated and beneficial conversations with donors

The simplicity of valuation with cash or cash equivalent gifts contrasts with the complexity of valuing several kinds of property gifts.  An initial cause of this complexity may come from the difficulty inherent in valuing certain types of property.  Additionally, there are special tax rules for charitable gifts of certain kinds of property which can themselves alter the valuation of the property for tax purposes.  These rules have at times been put in place to curb abuses of the charitable gift tax deduction.  Because many of these rules were created in a reactive fashion – responding to particular individual abuses – it has resulted in a hodgepodge of rules that are not always consistent.  Consequently, because so many specialized exceptions have arisen over the years, it is not always enough to know a single approach to the valuation of charitable gifts of property.  Nevertheless, there are some general principles that apply to most gifts of property.

Source: The Planned Giving Design Center