• Text Only
Voting History
rated:
This weekend, I donated a bunch of construction materials and home furnishings to a Habitat for Humanity Restore which I had bought using some FWF tactics for pennies on the dollar. When I was asked the value of the items, I told them the retail value of all the items was roughly $5,000 (roughly what it all would have cost new from Home Depot even though my cost basis was only about $350). I was told that they couldn't give me a receipt for $5k but if they were worth that much, they could provide me receipts with actual sale price (looking around the store $3k-$4k) once the items sold.  The good news for me is that this creates a FMV for the items (important in IRS publication 561 for charitable donations) because the Restore to a third party sale is arms length and fair market value.  

So, what I'm wondering is I can get a $3,000 tax write off for $350 in cost and assume 33% tax rate, I'm essentially getting $1,000 off taxes for $350, which seems like a great deal (up to the maximum percentage of my income I could deduct)?

Here's my logic for wanting to use the Restore versus taking these items and just trying to sell them myself:
1. Like all FWF methods of obtaining items cheaply, the potential inventory is constantly in flux, this week I might be able to get cheap sinks, next week cheap doors, the week after, cheap nails. I don't want to risk being stuck with crappy product in my "inventory".
1a. Assuming I stick with construction materials and the like, Habitat for Humanity will happily take everything I can give them.
2. The time investment is minimal. Pick up products, drive to restore, unload, pick up tax receipts from prior sales. No customer service, picture taking, etc.
3. No marketing expenses (time or $) and no dealing with idiots on Craigslist who don't show up, want to haggle down a penny at a time all afternoon, etc.

Anything I'm missing here?

Member Summary
Most Recent Posts
no, those miles have to be driven since your odometer will not reflect it. my question is how can the IRS tell personal ... (more)

rufflesinc (Jul. 23, 2016 @ 4:49p) |

Interesting that $500 (or 499) is significant. I used a new CPA this year for my taxes. I had a few donation receipts ... (more)

gremln007 (Jul. 23, 2016 @ 7:15p) |

success. sold the crappy playset via craigslist for $40. The guy arrived with a truck and trailer and was quite happy to... (more)

rufflesinc (Aug. 08, 2016 @ 10:02a) |

Staff Summary
  • Also categorized in:
Thanks for visiting FatWallet.com. Join for free to remove this ad.

Tax evasion for fun and profit.

Are you in the business of selling these items that you have purchased cheaply?

https://www.irs.gov/publications/p526/ar02.html#en_US_2015_publink1000229740

There are special rules for business inventory -- you can only deduct the lower of cost basis or fair market value.

Also, one can argue if the time frame between purchase and donation is close enough, the arms-length purchase price IS fair market value.

How are you getting this crap so cheap? Is it new? Are you using a business EIN to get a wholesale price? I'm not a licensed CPA, but if anyone can do this, I think I'd like to buy a cheap used pickup truck and get in on the deal.

If the "FWF tactics" to get materials for pennies on the dollar dry up or eventually fail for some other reason, is the deal dead?

you're missing that it's specifically the lesser of price paid or FMV that you can deduct, so it's clearly tax fraud to purchase it and immediately donate and take a larger deduction than what you paid. UNLESS you have held it for more than a year, in which case you may be able to just deduct FMV.

"May be able to" because the letter of the rules say you do just FMV after 1 year holding period, but it's not so clear if someone actually audited it and concluded that you were holding for a year just to deduct more than you paid they might see it as a form of a step transaction which would invalidate the larger deduction.

@stanolshefski - No, I am not in the business of selling these items, this was just stuff I had planned to use in a new home and for a variety of reasons ended up not using.

@DTSFAB - Buying wholesale, though buying it personally and not with an EIN. Though it is possible that what I have going could die tomorrow, one more reason I don't want to create a "business" doing this, my supply could disappear tomorrow. One of the big perks, I already own the cheap used pickup.

@Bend3r - Doing a bit of googling, I have only found that assets owned less than a year become "short term capital assets", but all the citations I have found for that are in reference to things like land, property, investments, etc. While I suppose something like a chandelier could be loosely considered a "capital asset", I'm not sure any asset can be qualified as a "capital asset" for tax purposes?

As for holding stuff for a year, it's worth considering, but I lose:
1. The liquidity for items and I know I'd simply start selling stuff, causing me more headaches and likely subjecting me to business inventory rules I don't want to screw with.
2. Carrying costs
3. Risk of loss, while home furnishing tastes don't really swing that wildly in 365 days, I'm not sure I want to risk it.

Thanks for the thoughts so far everybody!

If the amount of deductions is high enough, IRS might audit, and the onus on you to prove the value.

The easiest way to achieve that is to have a purchase receipt Handy (and even then you're running into issues of the item's value being discounted due to use and wear and tear).

IRS also is subject to cost-benefit analysis each time they audit someone, so it's unlikely they will lawyer up for grand savings of $50.

mwa423 said:   So, what I'm wondering is I can get a $3,000 tax write off for $350 in cost and assume 33% tax rate, I'm essentially getting $1,000 off taxes for $350, which seems like a great deal (up to the maximum percentage of my income I could deduct)?
If retail value is $5,000 and Restore value is around $3,000, wouldn't it be easier to just put the stuff on Craigslist for around $1,500 and dispense with all this pesky record-keeping?

Edit to add:  My craigslist experience in my area is markedly different from many posters here, so my view may be different from others. 

Either flip them for a profit to a normal buyer, or hold them a year to get around the "lower of basis or FMV" rule for donations.

dcwilbur said:   
mwa423 said:   So, what I'm wondering is I can get a $3,000 tax write off for $350 in cost and assume 33% tax rate, I'm essentially getting $1,000 off taxes for $350, which seems like a great deal (up to the maximum percentage of my income I could deduct)?
If retail value is $5,000 and Restore value is around $3,000, wouldn't it be easier to just put the stuff on Craigslist for around $1,500 and dispense with all this pesky record-keeping?

Edit to add:  My craigslist experience in my area is markedly different from many posters here, so my view may be different from others. 

  Yeah, you're less likely to give IRS red flags if you just sell them on CL for cash ...

Also, does OP itemize? I thought you had to itemize to get charity deduction?

xerty said:   Either flip them for a profit to a normal buyer, or hold them a year to get around the "lower of basis or FMV" rule for donations.
Done in small quantities, the IRS won't be able to know whether he held them for a year.  Given larger quantities, the total amount of the charitable donation is going to be big enough to draw attention.  The biggest problem with this is form 8283.  Too many non-cash donations will draw attention from human eyes.

That's why rufflesinc is correct.  Better to just sell for cash on craigslist.  Pocket the money.  Don't deposit more than a few hundred bucks at a time at the bank (unless you work in an industry in which your personal finances are closely monitored as a matter of routine - then you can't deposit any of it).  Don't do anything that draws attention.

The only thing I would donate to charity, as opposed to sell on craigslist, is stuff that would be very difficult or time-consuming to sell on craigslist

I had a few trash bags full of clothes and shoes that a tenant left behind. Donated those to goodwill and got a nice fat receipt that I can use to write off a couple hundred bucks.

When tenants leave furniture behind, I sell that on craigslist.  When they leave books behind, I see if  I can do Amazon buyback

When I remodel houses for a flip, I always donate old cabinets, light fixtures, sinks, faucets, etc to a ReUse store or Habitat for Humanity (whichever is able to pick up sooner) and get a receipt for the full market value.

blueiedgod said:   When I remodel houses for a flip, I always donate old cabinets, light fixtures, sinks, faucets, etc to a ReUse store or Habitat for Humanity (whichever is able to pick up sooner) and get a receipt for the full market value.
  the receipt shows a specific dollar amount? Where do they get the number from? 

Clearly I need to start doing this

Per usual, quality of tax advice in FWF leaves a lot to be desired.  A few quick points:

1.  The property described by OP will almost assuredly be capital gain property, therefore the relevant question becomes the holding period.  If held less than one year, then the deduction will equal FMV, minus the amount that would be short-term capital gain if the property were sold for its FMV. Generally, this rule limits the deduction to your basis in the property.

2. FMV is defined as the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. There is no "safe harbor," but --relevant here -- the actual selling price of the donated property, within a short period after the donation, would generally be accepted as the FMV at time of donation.

3. If the claimed deduction for an item or group of similar items of donated property is more than $5,000, you must get a qualified appraisal made by a qualified appraiser.

rufflesinc said:   
blueiedgod said:   When I remodel houses for a flip, I always donate old cabinets, light fixtures, sinks, faucets, etc to a ReUse store or Habitat for Humanity (whichever is able to pick up sooner) and get a receipt for the full market value.
  the receipt shows a specific dollar amount? Where do they get the number from? 

Clearly I need to start doing this

  

IT depends on the guy filling it out. Sometimes I get a guy who gives me what he feels it will sell for. Sometimes I get a guy who just gives me a black receipt and just signs it. Sometimes I get a guy who writes down the items, but leaves the dollar amount for me to put in later... 

blueiedgod said:   When I remodel houses for a flip, I always donate old cabinets, light fixtures, sinks, faucets, etc to a ReUse store or Habitat for Humanity (whichever is able to pick up sooner) and get a receipt for the full market value.
 

  I take all that stuff to my storage unit and then sell it on CL or put it in some other house.

alamo11 said:   
blueiedgod said:   When I remodel houses for a flip, I always donate old cabinets, light fixtures, sinks, faucets, etc to a ReUse store or Habitat for Humanity (whichever is able to pick up sooner) and get a receipt for the full market value.
  I take all that stuff to my storage unit and then sell it on CL or put it in some other house.

  

That's too much work for very little profit. Maybe people on CL are better quality where you are, but here, they expect me to not just sell it to them for $5, but also bring it to their house, and possibly install. I have not had a good luck with CL. A donation receipt saves me a lot more in taxes than I could ever get from selling on CL. 

About to close on a house that owner left some junk behind. what donation places will pickup stuff? I've got a couch and some end tables . But the main thing is a playset in the backyard. Other than salvation army , what places will send a truck and take a playset?

Military Order of the Purple Heart, Vietnam Veterans of America

Local sanitation company

1-800-got-junk

Get a chainsaw and cut it into little pieces, then dispose of the parts by hiding them in someone else's dumpster

rufflesinc said:   About to close on a house that owner left some junk behind. what donation places will pickup stuff? I've got a couch and some end tables . But the main thing is a playset in the backyard. Other than salvation army , what places will send a truck and take a playset?
  
Craigslist - Free, you can probably get rid of radioactive waste if it is being stored in a metal container of some sort.

mwa423 said:   
rufflesinc said:   About to close on a house that owner left some junk behind. what donation places will pickup stuff? I've got a couch and some end tables . But the main thing is a playset in the backyard. Other than salvation army , what places will send a truck and take a playset?
  
Craigslist - Free, you can probably get rid of radioactive waste if it is being stored in a metal container of some sort.

  that doesn't give me a receipt for a tax deduction

rufflesinc said:   
mwa423 said:   
rufflesinc said:   About to close on a house that owner left some junk behind. what donation places will pickup stuff? I've got a couch and some end tables . But the main thing is a playset in the backyard. Other than salvation army , what places will send a truck and take a playset?
  
Craigslist - Free, you can probably get rid of radioactive waste if it is being stored in a metal container of some sort.

  that doesn't give me a receipt for a tax deduction

  You want a receipt for a donation with a value of $0?  You know that will give you $0 discount off of your taxes...

Bend3r said:   
rufflesinc said:   
mwa423 said:   
rufflesinc said:   About to close on a house that owner left some junk behind. what donation places will pickup stuff? I've got a couch and some end tables . But the main thing is a playset in the backyard. Other than salvation army , what places will send a truck and take a playset?
  
Craigslist - Free, you can probably get rid of radioactive waste if it is being stored in a metal container of some sort.

  that doesn't give me a receipt for a tax deduction

  You want a receipt for a donation with a value of $0?  You know that will give you $0 discount off of your taxes...

  I get $0 by giving it away on craigslist, same as $0 as giving it to charitable org. I'd rather to it to the latter and get a deduction ...

the used playset has a value less than the teardown/moving cost though, so no sane charitable org would come collect it from you.  That's what I meant, unless they put a fictitious value on your receipt, they'd give you a receipt with a value of ~$0 or very near it.

rufflesinc said:     I get $0 by giving it away on craigslist, same as $0 as giving it to charitable org. I'd rather to it to the latter and get a deduction ...
  
A deduction $0 isn't going to do much for you -- its subtraction, not multiplication.

Bend3r said:   the used playset has a value less than the teardown/moving cost though, so no sane charitable org would come collect it from you.  .
how do you know

Try Salvation Army and Habitat for Humanity Restore also. This is very location-dependent, so I would suggest calling around.

If you are just going to blatantly lie and cheat on your taxes, there are surely less time consuming methods than this.

rascott said:   If you are just going to blatantly lie and cheat on your taxes, there are surely less time consuming methods than this.
how would the IRS know if I have a legit recei0t?

rufflesinc said:   
how would the IRS know if I have a legit recei0t?

 Audit?

supersnoop00 said:   rufflesinc said:   
how would the IRS know if I have a legit recei0t?

 Audit?

so what happens in an audit? I show the receipt. then what?

sorry , my earlier sentence was confusing. should have been "how would the IRS know if I cheated if I have a legal receipt?"

rufflesinc said:   
Bend3r said:   
rufflesinc said:   
mwa423 said:   
rufflesinc said:   About to close on a house that owner left some junk behind. what donation places will pickup stuff? I've got a couch and some end tables . But the main thing is a playset in the backyard. Other than salvation army , what places will send a truck and take a playset?
  
Craigslist - Free, you can probably get rid of radioactive waste if it is being stored in a metal container of some sort.

  that doesn't give me a receipt for a tax deduction

  You want a receipt for a donation with a value of $0?  You know that will give you $0 discount off of your taxes...

  I get $0 by giving it away on craigslist, same as $0 as giving it to charitable org. I'd rather to it to the latter and get a deduction ...

  
Donate it to a church. They will give you a donation receipt for the full value. But, you will most likely have to dismantle it, deliver, and set up.

rufflesinc said:   supersnoop00 said:   rufflesinc said:   
how would the IRS know if I have a legit recei0t?

 Audit?

so what happens in an audit? I show the receipt. then what?

sorry , my earlier sentence was confusing. should have been "how would the IRS know if I cheated if I have a legal receipt?"


Good point, the irs are just a bunch of fools, how could they tell legit or forged stuff? I suggest you just cut your taxable income by 80% this year it isn't like anybody actually reads those dumb things anyway.

Oh wait, was ruffles post a serious one?

mwa423 said:   rufflesinc said:   supersnoop00 said:   rufflesinc said:   
how would the IRS know if I have a legit recei0t?

 Audit?

so what happens in an audit? I show the receipt. then what?

sorry , my earlier sentence was confusing. should have been "how would the IRS know if I cheated if I have a legal receipt?"


Good point, the irs are just a bunch of fools, how could they tell legit or forged stuff? I suggest you just cut your taxable income by 80% this year it isn't like anybody actually reads those dumb things anyway.

Oh wait, was ruffles post a serious one?

are you incapable of reading? if a legit charity writes me a legit receipt, how is that forged?

mwa423 said:   
rufflesinc said:   
supersnoop00 said:   
rufflesinc said:   
how would the IRS know if I have a legit recei0t?

 Audit?

so what happens in an audit? I show the receipt. then what?

sorry , my earlier sentence was confusing. should have been "how would the IRS know if I cheated if I have a legal receipt?"


Good point, the irs are just a bunch of fools, how could they tell legit or forged stuff? I suggest you just cut your taxable income by 80% this year it isn't like anybody actually reads those dumb things anyway.

Oh wait, was ruffles post a serious one?

Anyone with a limited amount of computer knowledge along with a scanner and a 20 year old photoshop-type program can doctor a receipt and make it look as good as a fully modern, computer-generated authentic receipt.  Making fake stuff is actually getting easier, not because the forgery tools are getting better, but because the real receipts are becoming less sophisticated in the sense that they're becoming more uniform, more predictable, and less unique.  Nothing is handwritten.  A lot businesses that used to write receipts by hand on paperstock that wasn't necessarily easy to find are now generating their receipts on computers and printing them on 8.5 x 11 sheets of standard paper, and not in color.  These receipts are remarkably easy to alter, and the most experienced experts can't tell the difference because there are no forgery clues to look for, no security features.  If ruffles wants to forge a receipt for a donation to the Salvation Army, and the IRS decides to audit and investigate him, the only way they can confirm if the receipt is authentic is to crosscheck it against SA's internal records.  In all probability, any IRS audit that takes place is going to happen at least two years or more after the actual donation.  How long does SA keep its records for?

DTASFAB said:   
mwa423 said:   
rufflesinc said:   
supersnoop00 said:   
rufflesinc said:   
how would the IRS know if I have a legit recei0t?

 Audit?

so what happens in an audit? I show the receipt. then what?

sorry , my earlier sentence was confusing. should have been "how would the IRS know if I cheated if I have a legal receipt?"


Good point, the irs are just a bunch of fools, how could they tell legit or forged stuff? I suggest you just cut your taxable income by 80% this year it isn't like anybody actually reads those dumb things anyway.

Oh wait, was ruffles post a serious one?

Anyone with a limited amount of computer knowledge along with a scanner and a 20 year old photoshop-type program can doctor a receipt and make it look as good as a fully modern, computer-generated authentic receipt.  Making fake stuff is actually getting easier, not because the forgery tools are getting better, but because the real receipts are becoming less sophisticated in the sense that they're becoming more uniform, more predictable, and less unique.  Nothing is handwritten.  A lot businesses that used to write receipts by hand on paperstock that wasn't necessarily easy to find are now generating their receipts on computers and printing them on 8.5 x 11 sheets of standard paper, and not in color.  These receipts are remarkably easy to alter, and the most experienced experts can't tell the difference because there are no forgery clues to look for, no security features.  If ruffles wants to forge a receipt for a donation to the Salvation Army, and the IRS decides to audit and investigate him, the only way they can confirm if the receipt is authentic is to crosscheck it against SA's internal records.  In all probability, any IRS audit that takes place is going to happen at least two years or more after the actual donation.  How long does SA keep its records for?

  sigh, I was never talking about forging a receipt. My point was that if you had a REAL, LEGIT receipt that the REAL CHARITY wrote , then how would the IRS know if the value you claimed was the actual FMV?

I think the point here is that the IRS does not care if you deduct a couple hundred bucks each year for charity giving. They may care if you hit four figures .

rufflesinc said:     sigh, I was never talking about forging a receipt. My point was that if you had a REAL, LEGIT receipt that the REAL CHARITY wrote , then how would the IRS know if the value you claimed was the actual FMV?

I think the point here is that the IRS does not care if you deduct a couple hundred bucks each year for charity giving. They may care if you hit four figures .

There's a prescribed list of prices.  I'm not that familiar with it, but I'm sure you can find it on the internet.  Like, a brand new pair of pants might be deductible up to $20, but a very gently worn used pair in excellent condition might only be worth $10.  Or something like that.

You're right, they don't care about a few hundred dollars.  That's why they require form 8283 for large amounts of non-cash donations.

DTASFAB said:   
rufflesinc said:     sigh, I was never talking about forging a receipt. My point was that if you had a REAL, LEGIT receipt that the REAL CHARITY wrote , then how would the IRS know if the value you claimed was the actual FMV?

I think the point here is that the IRS does not care if you deduct a couple hundred bucks each year for charity giving. They may care if you hit four figures .

There's a prescribed list of prices.  I'm not that familiar with it, but I'm sure you can find it on the internet.  Like, a brand new pair of pants might be deductible up to $20, but a very gently worn used pair in excellent condition might only be worth $10.  Or something like that.

 

  Yes that's my point. How would the IRS know if I donated the former or the latter? How would the guy picking up the items in a truck or the clerk writing my receipt at the store know?

A tenant moved out and left a few bags of clothes and shoes. I donated them to goodwill and they wrote me a receipt, and for some reason wrote 7 bags of clothes even though I only had 3. How would the IRS know if I actually had anything useful in there as opposed to stuff that has to be thrown away?

Skipping 9 Messages...
success. sold the crappy playset via craigslist for $40. The guy arrived with a truck and trailer and was quite happy to take it apart himself.



Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.

Thanks for visiting FatWallet.com. Join for free to remove this ad.

While FatWallet makes every effort to post correct information, offers are subject to change without notice.
Some exclusions may apply based upon merchant policies.
© 1999-2017