Search
Close this search box.
Home / Articles / Valuing noncash donations: A cheat sheet

Valuing noncash donations: A cheat sheet

January 7, 2021

Share:

Many not-for-profits experience a flood of last-minute donations at the end of the year. Although cash is easy to value, valuing noncash property donations is trickier. If you’re struggling to assign amounts to contributions — either for a donor or your own records — review this cheat sheet.

Price on the open market

Most noncash donations are valued based on their fair market value (FMV) — generally, the price that property would sell for on the open market. For example, if a donor contributes used clothes, the FMV would be the price that typical buyers pay for clothes of the same age, condition, style and use.
If the property is subject to any type of restriction on use, the FMV must reflect it. So, if a donor stipulates that a painting must be displayed, not sold, that restriction affects its value. Restrictions on the use of real estate can dramatically affect the value of such gifts — for example, land that isn’t eligible for commercial development.

3 relevant factors

According to the IRS, there are three particularly relevant FMV factors. The first is the cost or selling price. This is the amount the donor paid for the item or the actual selling price received by your organization. But because market conditions can change, the cost or price becomes less important the further in time the purchase or sale was from the contribution date.

Another factor is comparable sales, or the sales price of property similar to the donated property. The IRS may give more or less weight to a comparable sale depending on the similarity between the property sold and the donated property, time of the sale, circumstances of the sale and market conditions.
Finally, there’s replacement cost. FMV should consider the cost of buying or creating property similar to the donated item. However, the replacement cost must have a reasonable relationship with the FMV.

Inventory exception

Inventory generally is subject to different valuation rules. Businesses that contribute inventory can usually deduct the smaller of its FMV on the day of the contribution or the inventory’s “basis.”

The basis is any cost incurred for the inventory in an earlier year that the business would otherwise include in its opening inventory for the year of the contribution. If the cost of donated inventory isn’t included in the opening inventory, its basis is zero and the business can’t claim a deduction.

It’s important to note that even if a donor can’t deduct a noncash donation (including a piece of tangible property or property rights), you may need to record the donation on your financial statements. Such donations should be recognized at their fair value or what it would cost for you to buy the donation outright. Contact us for more information on valuing noncash donations.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

Guidance

Related Articles

Article

2 Min Read

Not-for-Profits and the Current Expected Credit Loss (CECL) Model

Article

2 Min Read

Walking a Fine Line: Lobbying and Not-for-Profits

Article

2 Min Read

Top 3 Tips for Non-Profit Year End Donation

Article

2 Min Read

3 Reasons to Consider Outsourced Accounting for Nonprofits

Article

2 Min Read

Does our Nonprofit Need a Leadership Succession Plan?

Article

2 Min Read

Is a CFO the Right Choice for Your Nonprofit?

Get in Touch.

What service are you looking for? We'll match you with an experienced advisor, who will help you find an effective and sustainable solution.

  • Hidden
  • This field is for validation purposes and should be left unchanged.