Q: I'm considering donating a vacant lot to Habitat for Humanity to offset taxes on other property that I'm selling. For tax-deduction purposes, can I use the property's assessed value or must I use the estimated market value? If it's the latter, is the cost deductible?
A: Hello Robbie. Thank you for your question.
The general rule is that charitable deductions for donations of property are limited to the property's fair market value at the time of the contribution.
However, if the property has increased in value, the donor may have to make some adjustments to the amount of the deduction. For example, if you contribute property with a fair market value that is more than your basis (what you paid for it), you may need to reduce the fair market value by the amount of appreciation when figuring your deduction. For more information, look at IRS Publication 551, Basis of Assets.
Also, please be advised there are limitations based on the donor's adjusted gross income (AGI). Generally, the amount you can deduct for charitable contributions cannot be more than 50 percent of your AGI. Your deduction may be further limited, depending on the type of property you give and the type of organization you give it to. For more information, please see IRS Publication 526, Charitable Contributions.
A: You mention you are considering donating a vacant lot to offset taxes on other property you sold. Depending on your circumstances, the charitable contribution might not help as much as you would like. For example, the property you're selling might be considered inventory if you are a developer and have multiple units for sale.
To take a deduction, donors need to complete IRS Form 8283 (Noncash Charitable Contributions) with an attached appraisal by a qualified appraiser. (There is no separate form for state taxes.)
For more information, please see IRS Publication 526, Charitable Contributions.
Because your situation could be complicated, you may want to consider consulting with a tax advisor.