I donated some very expensive prescription medicine to the World Medical Relief organization. Do I deduct the full retail cost of that medicine?

[Fawnya]

I used 9 out of the 84 pills (all in blister packaging) so I thought to deduct 89% of the actual cost,  but it is still over $20,000  

[AmyC]

You deduct your share of the cost, not the retail value.  If you paid $1,000 out of pocket, then 89% of that would be the deduction. Be sure to keep all records, in case the IRS asks for you to prove what you paid. I feel sure your receipts would hold up in court to prove your basis.

The IRS requires a written appraisal for donated items over $5,000.  The method of determining the value has several methods. See IRS Determining Value for additional help.

References:

Do I need a receipt?

[Edit 2/20/2024 |2:41 PM PST]  @Fawnya

[Fawnya]

Thank you! This is just what I needed to know. 

Lorie

[Opus 17]

There are at least three problems here.

1. You can deduct the fair market value (what a willing buyer would pay a willing seller on the open market).  What is the fair market value for an opened package of medication?  How can you determine that?

2. You can only claim a donation to a US-registered exempt organization.  Is this organization registered in the US?  You can search here.

https://www.irs.gov/charities-non-profits/tax-exempt-organization-search

3. You can only claim a donation of non-cash items worth more than $5000 if you have a signed appraisal from a qualified appraiser (someone who has the appropriate experience and training to assign a fair market value for the particular item--obviously someone qualified to appraise drugs will not be the same person who is qualified to appraise estate sales) AND you have a signature from a qualified financial official from the recipient organization on a form 8283 that you must mail to the IRS after e-filing the rest of your return.  Without a signature from the organization, your maximum donation value you can claim is $5000.

4. Regardless of the market value of the item, your tax deduction is limited to your out of pocket cost.  Depending on your insurance, this might be substantially less than the original cost. 

[Fawnya]

Thank you for your very thoughtful response. The donation was made to a verified organization which must send the medication overseas. I have a receipt. The problem is indeed how to value it. The medicine is TriKafta, a life-saving medication for cystic fibrosis. I had an allergic reaction and had to stop taking a partial dose after a week, so there is nearly a month’s worth. It’s retail value is over $25,000. Does the fact that it went out of the country make a difference? It was a medication that had nowhere to go. 

Thanks again,

[Fawnya]

As an addendum, the point you made in #4 is the most relevant and leads to the conclusion that I cannot claim this deduction as insurance paid for the medicine. Thanks for your help. 

[Opus 17]

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@Fawnya wrote:

As an addendum, the point you made in #4 is the most relevant and leads to the conclusion that I cannot claim this deduction as insurance paid for the medicine. Thanks for your help. 

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As long as the charity is registered in the US, it does not matter if they transferred the items out of the country after you donate them.

However, you are limited by the basis rule.  That is, under most circumstances, you can only claim as a deduction, the amount of after-tax money you paid to acquire the property (your cost basis).    

There are some rare types of insurance coverage that may be considered taxable, so if you paid tax on the insurance reimbursement for the drug, then you have a basis in the drug.  

There is also an exception to the basis rule for capital property that was held for more than one year.  It would be my opinion that even if you had these pills in your cabinet for more than a year until you discovered a way to donate them, they aren't considered "capital property" for other reasons.  But you might find an aggressive accountant who would suggest that you could treat it as capital property.  Then you could claim a donation value of $5000 without a signature from the charity, or up to the fair market value if you get a signature from the charity on your form 8283 and the charity also files a form 8282 to report that they disposed of the drugs for an "exempt" purpose.  (An exempt purpose would include providing the drug to a patient, but it might be difficult to get those forms and signatures.)

This is all in publication 526

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