For nonprofits of all sizes, receiving donations is the lifeblood of the mission. But when those donations come in the form of tangible property—anything from office furniture and artwork to clothing and household goods—things can get a little tricky. Unlike a check, a box of used clothes or a piece of land doesn't have a clear dollar sign attached to it.
Whether you're a scrappy startup charity or a well-established organization, putting a price tag on these items is crucial. It impacts your financial reporting and ensures your donors have the right documentation for their taxes. But figuring out that value isn't always straightforward.
Let's break down the basics so you can assign values with confidence and keep your focus where it belongs: on your mission.
When a donor hands over a non-cash gift, the first question is usually: "What's this worth?" In most cases, assuming the property relates to your charity's tax-exempt function, you'll be looking at Fair Market Value (FMV).
Think of FMV as the price that property would sell for on the open market right now. It's the price a willing buyer would pay a willing seller when neither is forced to buy or sell, and both have reasonable knowledge of the relevant facts.
For example, if a donor drops off a batch of used winter coats for your refugee assistance program, the FMV isn't what they paid for them five years ago. It's the price a typical buyer would pay for coats of the same age, style, condition, and quality today at a thrift store or consignment shop.
A Note on Restrictions
Sometimes, gifts come with strings attached. If a donor gives you a piece of property but puts restrictions on its use, that changes the math.
Let's say a donor gifts a valuable painting but stipulates it must be displayed in your lobby and never sold. That restriction affects the value because you can't liquidate the asset. Similarly, real estate donated with restrictions—like land that can't be developed commercially—will often have a significantly lower FMV than unrestricted land.
When you're trying to pin down that FMV number, there are three main factors to keep in mind.
This is often the starting point. It's what the donor originally paid for the item or, if you turn around and sell it immediately, the price you get for it. However, time is the enemy here. Market conditions change. The price someone paid for a computer three years ago has very little to do with what it's worth today. The further away the purchase or sale date is from the donation date, the less relevant this factor becomes.
This is the real estate approach: "comps." You look at sales prices of properties similar to the donated item. This is often the most reliable method, but it requires finding a good match. The IRS looks at:
Finally, consider what it would cost to buy or create a similar item today. This is helpful, but there's a catch: the replacement cost must have a "reasonable relationship" to the FMV. You can't just use the price of a brand-new desk to value a ten-year-old one.
As with most things in accounting and tax, there are exceptions.
Business Inventory
If a business donates inventory to you, they generally can't deduct the full retail price. They are usually limited to deducting the smaller of the inventory's FMV on the donation day or the inventory's "basis" (essentially, the cost to produce or acquire it). If they've already written off that cost in a previous year, their basis might be zero, meaning no deduction at all.
Large Donations
For high-value items, the IRS gets more involved. Donors may need to meet specific appraisal requirements to claim their deduction. While this is technically the donor's responsibility, knowing these rules helps you support them and maintain a good relationship.
Valuing donated goods isn't just about guessing a number. It requires a consistent, thoughtful approach that stands up to scrutiny. By understanding Fair Market Value and the factors that influence it, you protect your nonprofit's financial integrity and help your donors stay compliant.
We know this can feel complex, but it doesn't have to be complicated. At SD Mayer & Associates, we specialize in cutting through the confusion. We're here to help you navigate these requirements so you can get back to the innovative work that drives your organization forward. Reach out today, and let's ensure your financials are as strong as your mission.