Donor Guidance for Non-Cash Charitable Contributions

Contributions of clothing and household items

Section 1216 of the Pension Protection Act of 2006 (PPA) imposes requirements for contributions of clothing and household items to charity. The provision is effective for contributions made after the date of enactment (August 17, 2006).

In general, clothing and household items are tangible personal property. If the property has appreciated in value since the donor acquired it, the donor may claim a deduction for fair market value only if the donated items are used in furtherance of the donee’s charitable purpose. Otherwise, the deduction is limited to the donor’s cost basis. If the items have depreciated in value—which is usually the case for clothing and household items—the donor’s deduction is limited to the items’ fair market value and the related use rule does not apply.

Under the requirements, no deduction is allowed for contributions of clothing and household items unless the property is in “good used condition or better.” A deduction may be claimed for an item that is not in good used condition or better if the deduction claimed is more than $500 and the donor includes a qualified appraisal with the tax return. The IRS is also authorized to deny deductions for items of minimal monetary value, such as “used socks and used undergarments.” Household items include furniture, electronics, appliances, linens, and similar items. Household items do not include paintings, antiques, art objects, jewelry, gems, or similar items that are likely to have appreciated in value.

Contributions of food and book inventory

Sections 1202 and 1204 of the PPA extend the provisions related to enhanced deductions for contributions of food and book inventory enacted by the Katrina Emergency Tax Relief Act of 2005 (KETRA). The provisions are now effective for contributions made through December 31, 2007.

A corporation may claim a tax deduction for a charitable contribution of gifts of inventory (i.e., products manufactured by the corporation). Limitations exist on what and how much can be deducted. In general, the inventory may be deducted only at cost, not at fair market value. However, there are some limited circumstances where more than cost (or basis) may be deducted. Several requirements must be met to qualify for the higher deduction, but in general the inventory must be used directly in the care of the ill, needy, or infants. The higher deduction is equal to the lesser of: (1) half the difference between cost and fair market value, or (2) twice the cost. (See Jane C. Nober, Beyond Our Borders: A Guide to Making Grants Outside the United States (third edition) for additional information.)

Before KETRA, only C corporations could deduct donations of food inventory. KETRA permitted S corporations, partnerships and sole proprietorships to take advantage of this deduction. Only food that is “apparently wholesome food” qualifies for the deduction. “Apparently wholesome food” is defined as food intended for human consumption that meets all quality and labeling standards imposed by federal, state, and local laws and regulations even though the food may not be readily marketable due to appearance, age, freshness, grade, size, surplus, or other conditions. KETRA also permitted C corporations to deduct contributions of book inventory. There are several requirements that must be met, but in general the books must be contributed to a qualified public school that provides elementary or secondary education (K-12).

Contributions of taxidermy

Section 1214 of the PPA limits the deductions that donors can claim for contributions of taxidermy (stuffed and mounted animals). Contributions of taxidermy are contributions of tangible personal property. In general, the donor’s deduction is equal to the property’s fair market value if used to further the donee’s charitable purpose, but the deduction is only equal to the cost basis if the property is not used to further the donee’s charitable purpose.

The provision limits the deduction to the lesser of the donor’s cost basis or fair market value, even if the property is used to further the donee’s charitable purpose. In addition, the donor’s cost basis is defined to include only the cost of stuffing and mounting.

The provision is effective for contributions made after July 25, 2006.

Basis adjustment to stock of S corporation contributing property (1203)

Section 1203 of the PPA makes a technical change with respect to the deductibility of contributions of property by S corporations. The provision is effective for contributions made in taxable years beginning after December 31, 2005, and before January 1, 2008. The effect of the change is to afford the S corporation’s shareholders a fair market value deduction for gifts of property.  Prior to the PPA, required adjustments to the shareholder’s basis in the S corporation’s stock had the effect of reducing the value of the shareholder’s charitable deduction to basis. This change does not affect gifts of the S corporation’s stock.

Recapture of tax benefit on property not used for an exempt use

Section 1215 of the PPA imposes requirements on contributions of tangible personal property that is meant to be used by the charity for its exempt purpose but that the charity subsequently sells.

In general, a donor may claim a deduction of fair market value for contributions of appreciated personal tangible property if the property is used by a charity in furtherance of its exempt purpose. Such property might include art, antiques, and jewelry donated to an art museum for its collection. A donor will have to obtain a qualified appraisal if the value of such property is more than $5,000. The donor also must complete and attach Form 8283 (Noncash Charitable Contributions) to his or her tax return. If the charity sells or disposes of the contributed property within three years of receipt, the charity must file Form 8282.

The provision reduces the donor’s tax deduction if the charity disposes of the property within three years of receiving the contribution. If the disposition occurs in the same tax year as the donor’s contribution, then the donor’s deduction is limited to cost basis, not fair market value. If the disposition occurs in a subsequent year, the donor’s ordinary income for the tax year in which the disposition occurs is adjusted by an amount equal to the excess (if any) of the deduction claimed over the donor’s cost basis in the property at the time of the contribution.

An exception is provided to the adjustment rules if the charity certifies to the IRS—by a written statement signed under penalty of perjury—that the property was one of the following:

  • Used by the charity in furtherance of its exempt purpose (in which case the charity must describe how the property was used and how the use furthered the charity’s exempt purpose)
  • Intended to be used by the charity in furtherance of its exempt purpose and that such use became “impossible or infeasible to implement”

The provision also imposes a penalty of $10,000 on a donor who claims a deduction for tangible personal property on the basis of the donee’s use of such property for its exempt purpose knowing that it is not intended for such a use.

The provision is effective for contributions made and returns filed after September 1, 2006. The penalty provision applies to claims made after date of enactment (August 17, 2006).


The information provided in this resource is based on our continuing analysis of the Pension Protection Act. Every effort has been made to ensure the accuracy of this information. Due to the complexity of the PPA and the fact that many of these provisions introduce issues that are new to the Internal Revenue Code, this information is subject to change. Please check back here and on the IRS website ( for updates. This information is not a substitute for expert legal, tax, or other professional advice and we strongly encourage grantmakers and donors to work with their counsel to determine the impact of the PPA and related guidance on their particular situations. This information may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.


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Guidance to donors on in-kind, food and inventory, taxidermy, S corporation stock, and recapture of tax benefit on property.

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