There comes a time when business owners and individuals no longer need their used machinery or personal property. They may also have recently acquired older tangible assets as part of a larger purchase or estate settlement, which they have no use for. In either scenario, there becomes an immediate need to determine the best option that benefits the owner.
The first thought is generally how to sell or liquidate the assets; however, this process may be difficult, especially if demand is limited or the owner is unfamiliar with resale markets. As an alternative, donating the property to a local business, university, training school, or non-profit organization might be a better choice. The benefits of a tax deduction and of supporting your community or alma mater might outweigh the uncertainty and time-consuming process of selling.
The next steps involve consulting with your accountant and finding a professional appraiser to discuss the benefits of donating. Depending on the anticipated total value of the assets, donating may be the better option. The IRS allows any non-cash charitable gifts of up to $5,000 before requiring an independent valuation.
The cost of the appraisal can be a hurdle in comparison to the tax benefit if the value is not greater than the maximum $5,000 threshold. If the total value does not support the cost, then it will not work. To quickly estimate this, you can calculate your expected tax deduction by approximating your donation's total value and multiplying it by your income tax bracket percentage.
For example, a $50,000 donation would result in a $10,000 deduction for someone in the 20% tax bracket. If the appraisal costs $5,000, you will end up with a $5,000 overall benefit for the donation. In this case, you are better off taking the simple no-cost deduction of $5,000. If the donation ends up being $75,000, with the same $5,000 appraisal fee, then the benefit will outweigh the cost (20% x $75,000 = $15,000). The lower the overall value of your donation, the more price-sensitive it will be relative to the appraisal cost.
Your accountant and appraiser can look to create an affordable option for you. Grouping similar inexpensive items so they can be valued together as a “lot” might be one way to save on costs. The appraiser’s focus can then be placed on the higher-valued property to detail and itemize the report. Once the valuation is complete, the last step will be filling out Form 8283 as part of your income tax filing. This will need to be signed by you, the appraiser, and the party to which you are donating.
In summary, before taking on the task of reselling your excess equipment and personal property, consider donating them as an alternative.