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Deduction for valuable donation that had no cost basis?

My mother-in-law passed away recently, and we are donating many of her things.  One item I'm not sure how to handle: a very expensive medication ("street" price > $10,000 for the bottle).  The catch is that this medication was granted to her for free from the manufacturer because she was on social security disability and had extremely limited income.

 

I understand the complications regarding documenting the donation, appraisal, (form 8283) etc., but because there was not a cost to obtain the item, can we even claim the actual value of the item as a donation?  I also realize there may be a separate issue of whether this item is ours (or when will it become ours) to donate, but if the zero cost basis is a deal breaker, I won't even try to claim it.

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6 Replies

Deduction for valuable donation that had no cost basis?

Deduction for valuable donation that had no cost basis?

Thanks.  FWIW, I did search for the obvious terms on this forum and the link you provided didn't show up.  

 

Regarding the fair market value determination discussion in the link, I'm curious if the issue is the argument that there is not an "open market" for this item, and having such is required to establish FMV.   There is a market for it, as the manufacturer is willing to sell it and a patient may be willing to buy it.   But I would accept that I can't sell the item, and if that means FMV = 0, I get it.

Deduction for valuable donation that had no cost basis?

In general:

If your mother (or her estate) donates an item of tangible personal property, the donation value is equal to the cost basis for items owned for 1 year or less.  For items owned more than 1 year, the donation value is equal to the cost basis unless the item is used for a "related" purpose.  For example, if she donates antique furniture that she bought 70 years ago for $50 to a museum that will study and display it, she can claim FMV, but if she donates it to public television to be auctioned for a fundraiser, she can only claim her basis.  Also, if the charity  disposes of the property within 1 year, they must report the disposal on form 8282 and describe how the use of the property contributed to the organization's charitable purpose. 

 

However, if you have inherited the property, you inherit a stepped-up cost basis equal to the FMV on the date of her death.  If you donate the antique furniture, you get the same value of deduction whether you donate it for a related or unrelated purpose. 

 

Now, this medication is a type of "tangible personal property" although somewhat different from a piece of furniture or used books, and your specific donation raises several concerns.  For example, did the manufacturer's grant program have a clawback option if your mother was unable to use the medication?  Is it even legal to donate "used" medication in your state?  How would someone verify it was useful, not contaminated and not expired?  Who would be legally authorized to accept the donation and dispense this medication (there might have to be a licensed pharmacist involved)?  Then, what is the actual FMV?  The manufacturers' list price, the co-pay that someone with decent insurance would pay, or something in between?

 

And it sounds like you are aware that for a donation over $5000, you would need a signature of a qualified appraiser and a signature of a responsible official from a charity on an original form 8283, that you will mail to the IRS after e-filing the rest of your return.

Deduction for valuable donation that had no cost basis?


@waisaacs wrote:

Thanks.  FWIW, I did search for the obvious terms on this forum and the link you provided didn't show up.  

 

Regarding the fair market value determination discussion in the link, I'm curious if the issue is the argument that there is not an "open market" for this item, and having such is required to establish FMV.   There is a market for it, as the manufacturer is willing to sell it and a patient may be willing to buy it.   But I would accept that I can't sell the item, and if that means FMV = 0, I get it.


The fair market value of something does not depend on your ability to sell the item—I'm not legally allowed to sell cigarettes in certain states because I don't have a state tobacco dealer's license, but that doesn't mean a pack of cigarettes has no FMV in my hands.  

 

What will be trickier is establishing what the value of the medication is, because the market is so complicated and has so many outside influences, but that would be a problem for whomever you get to do an appraisal to solve. 

Deduction for valuable donation that had no cost basis?

Thanks for all the info.  We did try to send it back to the manufacturer, and they declined.  I did check all of the things you mentioned regarding "donatability" (if that's a word).  It sounds like my issues would revolve around  getting an appraisal to establish FMV, and including the item in the estate settlement, so that it would be ours to donate.  I am not optimistic about getting an appraisal that would not be challenged, so I doubt I will try to go through the trouble.  We are at least able to donate it so it will get to a patient.  Again, appreciate the time and information.

 

Deduction for valuable donation that had no cost basis?


@waisaacs wrote:

Thanks for all the info.  We did try to send it back to the manufacturer, and they declined.  I did check all of the things you mentioned regarding "donatability" (if that's a word).  It sounds like my issues would revolve around  getting an appraisal to establish FMV, and including the item in the estate settlement, so that it would be ours to donate.  I am not optimistic about getting an appraisal that would not be challenged, so I doubt I will try to go through the trouble.  We are at least able to donate it so it will get to a patient.  Again, appreciate the time and information.

 


You can claim a value of up to $4999 without needing an appraisal or form 8283.  You will still need to figure out some reasonable way to determine the value that you put on the tax return and keep your records for 6 years in case of audit.

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