Donations provide the money that nonprofit organizations need to maintain operations and accomplish the goals of the organization’s mission. Donors have the option of gifting a charity with money or time, but they also have the option of donating tangible and/or intangible goods and services that the nonprofit would normally pay for with operating funds. Not all tangible and intangible goods and services donations are created equal, and only some are considered a deductible gift-in-kind.
Tangible personal property gifted to a charity is generally considered to be a gift-in-kind. Gifts typically include personal property (clothing, blankets, household items, etc.) donated assets, vehicles, and artwork. Tangible gifts-in-kind are deductible at fair market value.
Intangible property, such as advertising time, copyrights, patents, and services performed by a third-party can also be considered a gift-in-kind. Intangible gifts-in-kind are deductible at fair market value.
Property that is given to a charity for partial or limited use, gifts of time, personal effort, and donor-performed services are not tax-deductible, and are not considered gifts-in-kind. Likewise, corporate gifts provided by the corporation performing the underlying service, such as airline tickets gifted by the airline itself, are not considered gifts-in-kind. However, gifts of inventory by a company would be considered in-kind.
While volunteers can write off the cost of travel when they donate their time and service to a nonprofit, the hours and effort they contribute are not considered a gift-in-kind. By the same token, a donor who opens her house to host a charitable event would not be considered to have given a gift-in-kind since the house is “given” for limited use only. However, if the host pays a third-party to cater the event, that may be considered a gift-in-kind.
Not-for-profits must make a good-faith effort to determine the fair market value of every gift-in-kind received, and record that value on financial statements. It may be necessary to obtain appraisals for donations of tangible items like jewelry, art, or cars to determine the fair market value of those items.
The Gift of Good Advice from CRI’s Nonprofit CPAs
CRI’s not-for-profits CPAs can determine which donations to your organization are considered gifts-in-kind, and help you develop best practices for evaluating and reporting these items.