The Value of Tangible Property Donations

October 1, 2025

A donor offers your nonprofit a residential property, a collection of antique jewelry, or even surplus business inventory. Would you know how to determine its value? While these types of contributions may not come every day, being prepared ensures you can accept them confidently, and stay compliant.

Valuing tangible property isn’t just about donor tax deductions; it also impacts your organization’s financial reporting. Here’s what every nonprofit executive needs to know.

What Does “Fair Market Value” Mean?

In most cases, donated property is valued at its fair market value, the price it would likely sell on the open market. For example:

  • If a donor gives used clothing for disaster relief, fair market value equals what buyers would pay for similar clothes in the same condition.
  • If the property comes with restrictions (such as zoning limits on real estate), those restrictions reduce its fair market value.

If the donated property is unrelated to your mission and you plan to sell it, the donor’s deduction may be limited to their original cost basis, not fair market value.

Three Key Factors in Determining Fair Market Value

  1. Cost or Selling Price
    The donor’s purchase price or your eventual selling price can provide clues, but the further in time from the donation date, the less relevant this becomes.
  1. Comparable Sales
    Look at recent sales of similar items. The IRS weighs factors like similarity, timing, and market conditions.
  1. Replacement Cost
    What would it cost to replace the item today? This figure should reasonably align with fair market value.

Special Rules for Business Inventory

When businesses donate inventory, their deduction is generally the lower of fair market value or the item’s basis (usually its original cost). If the cost wasn’t included in opening inventory, the basis is zero, meaning no deduction.

Appraisal Requirements

For property valued over $5,000, donors must obtain a qualified appraisal to claim a tax deduction. The appraiser must be an independent expert in the specific property type.

Why This Matters for Your Nonprofit

Accurate valuations aren’t just for donors. They’re essential for your financial statements, and the value you record may differ from what donors can deduct. Missteps can lead to compliance issues or reputational risk. Consult Lumsden McCormick to ensure compliance and transparency.

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Cathleen Karpik

Cathleen Karpik

CPA

Principal

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