In-Kind Donation Question

[JohnASmith]

Help me understand how an In-Kind donation works.  Let’s assume I am an architect and my church wants to hire me to design a new building.  I tell them my fee is $10,000, but I will wave the fee for them.  Is the $10,000 that I waived an In-Kind contribution?  If so, I would I claim it against the business or as a personal itemized deduction?

[rjs]

The example you gave is not a tax deductible donation, either business or personal. You can never deduct the value of your time. The term "in-kind donation" might be a little vague and misleading. What the IRS says you can deduct is donations of "property," which then becomes a possession of the organization.

In your example, the only thing you can deduct is direct expenses that you incur in performing services for the church, such as the cost of paper or other materials that you use in designing the building.

[JohnASmith]

I don't mean to be argumentative, but based on information I have received from other sources I think you are mistaken.  Here is an example.  Hopefully links are allowed.

https://charitableallies.org/in-kind-donations/#:~:text=Generally%2C%20a%20donor%20may%20deduct,doll....

From another source:

How do In-Kind Donations of Services Differ from Volunteering?

Generally, an in-kind donation of a service needs to be performed by a professional with a specialized skill in the service. For example, legal services, accounting services, or web design would all count as in-kind donations of services. However, a person collecting tickets at an event or performing any unskilled labor would count as volunteering. 

It is important to recognize the difference between the two because in-kind donations of professional services should be recorded on an organization’s financial statements. However, volunteering does not need to be recorded as such. 

In addition, in-kind donations of services can be complicated to track for tax purposes. For example, donated time (volunteering) is not tax-deductible, but if the volunteer provided goods to help comp.... To illustrate this, think about a vet providing his services to the animal shelter, their time would not be tax deductible, however, the medical supplies they used would be. 

[rjs]

I don't see anything in what you posted that contradicts what I said. Several of the references essentially repeat what I said. The sources that you referenced primarily discuss how the charitable organization reports in-kind donations on its financial statements. That has nothing to do with whether the donor can claim a tax deduction. The criteria are completely different. You cannot draw conclusions about deductions by the donor from rules for financial reporting by the organization. Where your references do mention deductibility by the donor, they say the same thing that I said.

Some of the text on the Charitable Allies web site (your first link) is identical to text on the Labyrinth Inc. web site. Obviously one was copied from the other. They both say "Generally personal services are not deductible, however, the expenses associated with providing such services are." In addition, Labyrinth says "It's important to note that donated time (volunteering) is not tax-deductible, but if the volunteer provided goods to help complete the volunteer job, those things would be tax-deductible."

You didn't provide a link to the text that you posted "From another source." It's from DonorSnap, a company that sells software for non-profits. Here is the link.

In-Kind Donations: A Complete Guide

The links to Labyrinth and HBK come from the DonorSnap page. The text of the Labyrinth reference on the DonorSnap page repeats what I quoted above. Also, the example of the veterinarian at the end of the your quote from the DonorSnap page explicitly says that the vet's time is not tax deductible.

The HBK page (referenced by DonorSnap) is solely about financial reporting by the organization. It doesn't even mention tax deductions for the donor.

[Opus 17]

You can't claim a deduction for anything that you do not have basis in.  Basis is (roughly speaking) the amount of already-taxed dollars you have invested in something.  Consider a painter, they buy paint and canvass for $50, and create a painting they could sell for $500.  If they donate the painting, the value of the deduction is only $50, because that is their basis--the already taxed dollars they used to purchase the materials.  They can't increase their basis by the value of their time because they never paid income tax on it.  Likewise for architect plans.

In the alternate, you could charge the church $50,000, report that income as taxable income to your business, and pay the tax on the income.  Then, if you donated $50,000 back to the church, you could take a tax deduction for the cash donation (but only after reporting and paying tax on the cash income.)  (Which would not even come out as a wash, since you would pay SE tax on the income but you could only take the deduction from income taxes.)

[JohnASmith]

Two experts are now advising me that the scenario I described is a no-go.  I believe you are both likely correct, but can I ask a question regarding basis being the only allowable deduction?  If I bought land 10 years ago for $20,000 and I donated it today to a charity, when it's appraised at $100.000, I can only deduct the $20,000 basis?  That's definitely not what charities are telling doners. 

[Opus 17]

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@JohnASmith wrote:

Two experts are now advising me that the scenario I described is a no-go.  I believe you are both likely correct, but can I ask a question regarding basis being the only allowable deduction?  If I bought land 10 years ago for $20,000 and I donated it today to a charity, when it's appraised at $100.000, I can only deduct the $20,000 basis?  That's definitely not what charities are telling doners. 

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There are a number of special rules here.  See publication 526, starting on page 12, for "giving property that has increased in value."

https://www.irs.gov/pub/irs-pdf/p526.pdf

There are different rules for ordinary income property (property that would result in ordinary income if sold) and capital gain property (property that would result in a capital gain if sold).  And within the capital gain category, there are different rules for real property (land with anything attached) and tangible personal property (items that you can hold, more or less).  And there are special rules and limitations depending on what kind of charity the recipient is.

So yes, in general, if you donate land to the right kind of charity, you can claim the current FMV and not the basis.  However, for items that are considered "ordinary income property", you can only claim the basis.  And you can't take a deduction for the value of personal services (page 6-7).  So whether you consider that you are donating your personal services, or you are donating property that you would normally sell (blueprints), your deduction value is limited to your basis, unless you report the item as a sale by your business and pay tax on the income (see page 12, column 2, under "Exception".)

[rjs]

Just one small refinement to what Opus 17 said. He said "in general, if you donate land to the right kind of charity, you can claim the current FMV and not the basis." That is true as long as you owned the land for more than a year. If you owned it for a year or less it is ordinary income property and your deduction is limited to the basis.

The rules for donations are complicated. That's why Publication 526 is 26 pages.