Capital Donation Tax Deduction: FMV, Appraisal, and IRS Forms

A capital donation tax deduction lets you give appreciated property to a qualified charity, deduct its full fair market value, and avoid the capital gains tax you would have owed on a sale. For long-term appreciated property given to a public charity, the deduction is capped at 30% of your adjusted gross income each year, with any unused amount carrying forward for up to five more years.¹ You have to itemize on Schedule A to claim it, so the strategy pays off when your itemized deductions clear the standard deduction.

What Property Qualifies

The asset has to be something that would produce a long-term capital gain if you sold it. That means you must have held it for more than one year. Anything held twelve months or less counts as short-term, and the deduction rules turn much less favorable.

The most common assets used this way are publicly traded stocks and mutual fund shares, real estate, artwork and collectibles, and interests in closely held businesses. Appreciated stock held longer than a year is the workhorse: the market price gives an objective value, no appraisal is required, and you avoid paying tax on the built-in gain.

The recipient has to qualify under Section 170 of the Internal Revenue Code. Public charities get the best treatment: churches, hospitals, universities, and organizations broadly supported by the public or government. Donor-advised funds sponsored by public charities count at the public charity level. Private non-operating foundations qualify too, but with tighter limits and, for most appreciated property, a deduction cut down to your cost basis.

How Much You Can Deduct

Deduction ceilings are set as percentages of adjusted gross income, and they depend on what you give and to whom. Categories stack, so a donor who gives both cash and stock in the same year tracks each separately.

Cash to a public charity: up to 60% of AGI.
Appreciated long-term capital gain property to a public charity: up to 30% of AGI, deductible at full fair market value.
Cash to a private non-operating foundation: up to 30% of AGI.
Appreciated capital gain property to a private non-operating foundation: up to 20% of AGI, and the deduction is reduced to your cost basis rather than fair market value.

These limits come from Section 170(b)(1).¹

The 50% Election

You can elect to reduce your deduction for appreciated capital gain property to its cost basis in exchange for a higher AGI ceiling. Making the election bumps the limit from 30% to 50%. The election applies to all capital gain property you donate during the year, not just one gift.²

For most donors with a large unrealized gain relative to basis, the 30% ceiling at full fair market value produces a better result. The 50% election tends to help only when appreciation is modest or you need a bigger deduction this year for other reasons.

Carrying Unused Deductions Forward

If your donation exceeds the AGI ceiling that applies, the excess carries forward for up to five additional tax years. The carryover keeps the same percentage limit that applied in the original year. Anything not used by the end of year five expires.¹

When the Full FMV Deduction Gets Reduced

Not every appreciated asset gets a full fair-market-value deduction. Section 170(e)(1)(A) requires you to subtract any portion of the gain that would not have been long-term capital gain on a sale.¹

A few situations trigger the cutback:

Property held one year or less, inventory, or anything whose sale would produce ordinary income or short-term capital gain: deduction limited to cost basis.
Depreciable business equipment and machinery: the depreciation recapture under Section 1245 is treated as ordinary income, which effectively caps the deduction for most depreciable personal property at basis. Real estate under Section 1250 generally does not face the same reduction, so an appreciated commercial building can still generate a full FMV deduction on the capital gain portion.
Appreciated capital gain property given to a private non-operating foundation: deduction is generally reduced to cost basis. The one meaningful exception is publicly traded stock, which can be deducted at full FMV even when given to a private non-operating foundation, though the 20% AGI limit still applies.

Determining Fair Market Value

Fair market value is what a willing buyer would pay a willing seller when neither is forced to act and both know the relevant facts.³ For publicly traded stock, FMV is the average of the high and low quoted selling prices on the contribution date. For real estate, art, closely held business interests, and anything else without a public market, valuation is more subjective and usually requires a professional appraisal.

Relevant factors include original cost, sales of comparable properties, replacement cost adjusted for depreciation and obsolescence, and expert opinion. The IRS pays close attention to appraisals that look inflated against these benchmarks.

Appraisal Requirements

If your claimed deduction for a single item or a group of similar items exceeds $5,000, you need a qualified appraisal and must complete Section B of Form 8283 with your return.⁴ Publicly traded securities are the main exception: no appraisal needed even above $5,000. Vehicles, intellectual property, and certain inventory follow their own rules under Section A of the form.

A qualified appraisal has to be done by an independent appraiser with recognized credentials for the specific type of property. The appraiser cannot be the donor, the charity, or anyone related to either. The report must be signed and dated no earlier than 60 days before the contribution date and no later than the due date of the return (including extensions) on which the deduction is first claimed.⁵

Both the appraiser and the charity have to sign Section B. The appraiser acknowledges the penalties for overstating value; the charity acknowledges receipt. Missing signatures or a late appraisal can wipe out the entire deduction, and the IRS does not treat these as technical formalities.

Vehicles Over $500

Donating a car, boat, or airplane worth more than $500 has its own rules. The charity must give you a Form 1098-C within 30 days of the sale or disposition of the vehicle.⁶ If the charity sells the vehicle without significant intervening use or material improvement, your deduction is limited to the gross sale proceeds, not the vehicle’s fair market value. If the charity uses the vehicle in its programs or materially improves it before selling, you can deduct full FMV.

Art and Collectibles

Art donations follow the general appraisal rules, but high-value items get extra scrutiny. The Commissioner’s Art Advisory Panel reviews appraisals of artwork generally valued above $150,000, and the IRS can review items below that threshold as well.⁷ A well-documented appraisal from a recognized expert in the specific type of art is essential.

Documentation the IRS Requires

The paperwork stacks up with the size of the gift, and one missing piece can cost you the deduction.

Written Acknowledgment for Gifts of $250 or More

For any single contribution of $250 or more, you need a contemporaneous written acknowledgment from the charity. It has to describe the property (without stating value), say whether the charity gave you any goods or services in return, and estimate the value of those benefits if any. Anything you received in return reduces your deduction. You must have the acknowledgment by the earlier of the date you file your return or the return’s due date including extensions.⁸

Form 8283 for Non-Cash Donations Over $500

Any non-cash donation claiming a total deduction above $500 requires Form 8283 with your return. Section A covers gifts between $500 and $5,000, plus publicly traded securities, vehicles, and certain inventory at any value. Section B covers everything else above $5,000 and requires the qualified appraisal and signatures.⁹

Form 8282 If the Charity Sells the Property

If the charity sells, exchanges, or otherwise disposes of the donated property within three years, it must file Form 8282 and send you a copy. The rule does not apply if the property was valued at $500 or less or was distributed for charitable purposes.¹⁰ The form reports the gross sale proceeds, which the IRS can compare against your claimed deduction. A large gap is one of the most common audit triggers for non-cash gifts.

Penalties for Overvaluing Donated Property

Inflated appraisals draw a serious penalty structure. A substantial valuation misstatement carries a 20% accuracy-related penalty on the underpaid tax. A gross misstatement doubles the penalty to 40%.¹¹ A separate penalty under Section 6662(l) for charitable contributions can reach 50% of the underpayment attributable to an overstated deduction.¹²

Appraisers face their own penalties under Section 6695A when they knew or should have known that an appraisal would be used on a return and it produces a substantial or gross valuation misstatement.¹³ Be skeptical of any appraiser who promises an unusually high valuation.

For individuals, the underpayment attributable to valuation misstatements has to exceed $5,000 before these penalties apply. That floor sounds generous, but a single overstated real estate or art donation crosses it easily.

Planned Giving Vehicles Worth Knowing

Donors with large appreciated holdings or complex estate plans often use structured vehicles to get more mileage from the deduction.

Donor-Advised Funds

A donor-advised fund is a charitable account held by a sponsoring public charity, typically a community foundation or a fund tied to a financial institution. You make an irrevocable contribution of cash or appreciated property, take an immediate deduction, and recommend grants to operating charities over time. Because the sponsor is a public charity, appreciated securities qualify for the 30% AGI limit at full fair market value. The assets grow tax-free inside the fund. DAFs are the simplest planned giving tool and by far the most popular; they work especially well in a year with unusually high income, since you can front-load the deduction and distribute grants gradually.

Charitable Remainder Trusts

A charitable remainder trust lets you donate appreciated property and keep an income stream. You transfer assets into an irrevocable trust that can sell them without triggering immediate capital gains tax. The trust pays you or your beneficiaries either a fixed annuity or a fixed percentage of the trust’s value each year for life or a term of up to 20 years. When the trust ends, the remainder goes to charity. You take a current-year deduction based on the present value of the charitable remainder interest. CRTs are useful when you hold a concentrated, highly appreciated position and want both diversification and income. Drafting and administering one requires legal and tax counsel.

Charitable Lead Trusts

A charitable lead trust runs the other way: the charity receives income payments for a set term, and the remaining assets pass to non-charitable beneficiaries, usually family, when the term ends. CLTs are primarily an estate and gift tax planning tool.

Fractional Interest Donations

You can donate a fractional interest in tangible personal property, such as a painting or sculpture, and deduct the value of that fraction. All remaining interests must go to the same charity by the earlier of ten years after the initial gift or your death, and the charity must take substantial physical possession and use the property in a way related to its exempt purpose during that time. Missing the deadline triggers recapture of all previously claimed deductions plus interest, and an additional tax equal to 10% of the recaptured amount.¹

1
Office of the Law Revision Counsel. 26 USC 170 – Charitable, Etc., Contributions and Gifts
2
eCFR. 26 CFR 1.170A-8 – Limitations on Charitable Deductions by Individuals
3
Internal Revenue Service. Publication 561 – Determining the Value of Donated Property
4
Internal Revenue Service. Form 8283 – Noncash Charitable Contributions
5
eCFR. 26 CFR 1.170A-17 – Qualified Appraisal and Qualified Appraiser
6
Internal Revenue Service. About Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes
7
Internal Revenue Service. Art Appraisal Services
8
Internal Revenue Service. Charitable Contributions – Written Acknowledgments
9
Internal Revenue Service. Instructions for Form 8283 – Noncash Charitable Contributions
10
Internal Revenue Service. Charitable Organizations – Substantiating Noncash Contributions
11
Internal Revenue Service. The Section 6662(e) Substantial and Gross Valuation Misstatement Penalty
12
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments
13
Internal Revenue Service. Penalties Applicable to Incorrect Appraisals