Using Appreciated Tangible Personal Property in Charitable Giving

Overview

Donating appreciated tangible personal property can be a highly tax-efficient way to support a nonprofit while avoiding capital gains tax you would owe if you sold the item first. However, the tax outcome depends on several rules: whether the receiving charity can use the item in a way related to its exempt purpose, the donor’s adjusted gross income (AGI) limits, and IRS valuation and documentation requirements. This article summarizes the key rules, practical steps, common pitfalls, and planning strategies—based on IRS guidance and 15 years of financial-planning experience working with clients who make gifts of artwork, antiques, classic cars, and collectibles.

When can you deduct fair market value (FMV)?

The critical test is “related use.” If the donated tangible personal property is related to the charity’s tax-exempt purpose (for example, a painting to a museum or historic items to a historical society), the donor generally may deduct the item’s fair market value, subject to the usual AGI percentage limits for appreciated property.

If the property is not related to the charity’s exempt purpose (for example, donating a valuable painting to a charity that plans to sell it and use the proceeds), the deduction is generally limited to the donor’s cost basis in the property—not FMV (see IRS Publication 526 and Publication 561).

Authoritative references: IRS Publication 526 (Charitable Contributions) and Publication 561 (Determining the Value of Donated Property) explain the related-use test and valuation rules (IRS, 2024–2025 guidance).

AGI limits and capital-gain property rules

Tax rules treat appreciated tangible personal property that would have produced long-term capital gain if sold as “capital gain property.” Key points:

• If you deduct FMV for capital gain property given to a public charity and the property is related to the charity’s purpose, your deduction is generally limited to 30% of your AGI. For private foundations, the limit is lower (typically 20% of AGI). (IRS Publication 526.)
• If you give capital gain property that is not related to the charity’s exempt purpose, you generally can deduct only your basis (what you paid). Even when deducting basis, other AGI limits may apply.
• If you’re unsure whether your deduction will be capped by FMV or cost basis, get professional advice before claiming more than your basis on Form 8283.

Note: The exact AGI percentages can change with tax law; always check the latest IRS publications or consult a tax advisor for your tax year.

Valuation and appraisal requirements

Donors must substantiate noncash contributions. Important thresholds and rules:

• Any noncash contribution over $500 requires IRS Form 8283 to be completed and attached to your return.
• For noncash donations over $5,000 (other than publicly traded securities), you must obtain a qualified appraisal and complete Section B of Form 8283. The IRS generally requires the appraisal to be done by a qualified appraiser familiar with the type of property (see the Form 8283 instructions and IRS Publication 561).
• If the claimed deduction for an item is over $50,000, you must attach the appraisal summary (and a copy of the appraisal for certain high-value gifts) to your return. Form 8283 will indicate additional reporting obligations.

Always retain photographs, bills of sale, provenance (for artwork), and written correspondence with the charity. The appraisal should describe the property, the method used to determine FMV, and the appraiser’s qualifications.

Authoritative sources: IRS Form 8283 instructions and Publication 561 detail appraisal standards and documentation requirements (IRS.gov).

Documentation steps (practical checklist)

1. Confirm the charity’s status as a qualified organization (501(c)(3))—use the charity’s determination letter or the IRS Tax Exempt Organization search.
2. Determine if the item is likely “related use” for that charity; ask the charity in writing how it plans to use the donation.
3. Get a qualified appraisal if the item’s value exceeds $5,000. For multiple items of similar type donated together, aggregate valuation rules may apply.
4. Complete Form 8283 appropriately; have the charity sign where required.
5. Keep records: appraisal, photos, proof of original purchase (if available), correspondence, and the charity’s contemporaneous written acknowledgement for any contribution of $250 or more (per IRS rules).

For a practical guide to tracking donations of physical goods and receipts, see FinHelp’s How to Track Charitable Deductions When Donating Goods.

Examples from practice

• Art to a museum: A client donated a long-held painting to a regional museum that planned to display it as part of its collection. Because the gift had related use, the client was able to deduct FMV (supported by a qualified appraisal) and avoided capital gains tax on the appreciation.

• Collectibles to a general charity: Another client donated a valuable coin collection to a general-purpose charity that planned to auction the coins. Because the charity’s use was to sell rather than exhibit, the donor’s deduction was limited to basis. We advised selling the coins and donating the cash if the primary goal was a larger immediate tax deduction.

These case examples highlight why confirming the charity’s intended use in writing—before making the gift—matters.

Tax planning strategies

• Donate items with related use when possible to capture FMV deduction and avoid capital gains tax.
• If the receiving charity will sell the item, consider selling it yourself in a tax-favored account or gifting proceeds instead—compare net tax outcomes.
• Bunch noncash gifts into a year when you can use the larger deduction against higher AGI, or pair the donation with cash gifts to reach charitable deduction thresholds.
• For high-value items, involve your CPA or tax attorney early—appraisals take time and mistakes on Form 8283 can trigger IRS inquiries.

See FinHelp’s guide on How to Document Charitable Gifts for Maximum Deduction for templates and documentation best practices.

Common mistakes and red flags

• No appraisal or an inadequate appraisal for gifts over $5,000 (leads to disallowed deductions or penalties).
• Assuming FMV deduction without confirming related use.
• Failing to attach or complete Form 8283 when required.
• Donating items in poor condition under the assumption of full FMV—charities will typically refuse or downgrade such gifts, and the IRS will reduce deductions if condition warrants it.

Penalties: If you overstate the value of a noncash contribution, you may face accuracy-related penalties; if you file a false appraisal, the appraiser can face penalties as well.

Frequently asked, briefly

• Who can sign Form 8283? The donee organization signs the donee acknowledgement; for large gifts, an appraiser’s signature and additional documentation will be required.
• Do I need to itemize to claim the deduction? Yes—noncash charitable deductions require itemizing on Schedule A of Form 1040 (unless a special rule applies to your year).
• What if the charity sells my donated item soon after receipt? If the donation was represented as related use but the charity sells it within a short time, your deduction may be reduced. Keep written confirmation of the charity’s intended use.

Professional disclaimer

This article is educational and does not constitute tax, legal, or financial advice for your specific situation. Tax law changes and facts matter—consult a qualified CPA or tax attorney before completing high-value gifts of tangible personal property.

Authoritative sources

• IRS Publication 526, Charitable Contributions: https://www.irs.gov/pub/irs-pdf/p526.pdf
• IRS Publication 561, Determining the Value of Donated Property: https://www.irs.gov/pub/irs-pdf/p561.pdf
• IRS Form 8283, Noncash Charitable Contributions (instructions): https://www.irs.gov/forms-pubs/about-form-8283
• IRS Charitable Contributions summary (charities & qualification): https://www.irs.gov/charities-non-profits/charitable-contributions

Related FinHelp articles:

• How to Track Charitable Deductions When Donating Goods: https://finhelp.io/glossary/how-to-track-charitable-deductions-when-donating-goods/
• How to Document Charitable Gifts for Maximum Deduction: https://finhelp.io/glossary/how-to-document-charitable-gifts-for-maximum-deduction/

In my practice, the most common win is confirming related use in writing and investing in a strong, defensible appraisal. Those two steps usually preserve the full FMV deduction and reduce audit risk.