A donation of a horse to a tax-exempt organization can be mutually beneficial. The donor could potentially obtain an income tax deduction, and the organization receives a worthwhile asset. The horse itself also appreciates greener pastures.
This article summarizes the guidelines for horse owners contemplating such a charitable contribution.
Be sure that the donee organization qualifies as an eligible charity under the Internal Revenue Code and that your horse will be used by the organization to further its exempt purpose. You can ask to see the “IRS Determination Letter” or look online for the listing of approved charities.
Determining Fair Market Value (FMV)
What is the price your horse could be donated for on the date of your charitable gift? You may want to consider the services of a professional equine appraiser.
FMV will be a function of several variables, including the horse’s age, the number of years owned, how the horse has been trained and used, as well as the horse’s personality and track record.
The appraisal should include a description of the horse, the dates of the appraisal and donation, the appraiser’s name and qualifications, and the appraisal method used.
Potential Income Tax Deduction
Generally, you may deduct the FMV of the horse you are donating, though many caveats apply. The full FMV deduction is available when:
–The horse will be used by the donee charitable organization directly in regard to its stated charitable purpose.
–There is no financial consideration received in return.
–You have used the horse in business activities for the prior 24 months.
Limitations on the Income Tax Charitable Contribution Deduction
If the horse is not used in connection with the charity’s purpose, the income tax deduction becomes the lesser of the FMV of the horse or the amount of your cost basis. A horse that you bred yourself or one that is fully depreciated would not give rise to any deduction in such a case.
This same limitation of the lesser of FMV or cost basis also applies to a horse that has been owned for less than 24 months.
Another situation of a reduced deduction arises when a donated horse that has appreciated in value but has been depreciated. In this scenario, the amount of the charitable deduction is reduced by the amount of depreciation that has been taken.
Further, if you donate a horse that has diminished in value, i.e. your cost basis is higher than the FMV, your charitable deduction would be limited to the FMV.
In such a case, you may be better off selling the horse to generate a tax loss, then donating the proceeds to the charity.
How to Report Your Donation on Your Tax Return
When your charitable deduction is more than $500, you will need to include Form 8283 with your tax return. This form asks for how and when you acquired the horse, your basis, the estimated FMV, and the method used to come up with the FMV.
If the charitable deduction to be taken is greater than $5,000, you will need to have your horse appraised at the time of the donation. This attached written appraisal needs to be contemporaneous and signed by the appraiser, along with the appraiser’s qualifications and method(s) used to determine the valuation.
The Green Group
Our team here at the Green Group, with our many decades of equine experience, would be glad to walk you through the steps to make sure that you achieve the maximum charitable contribution deduction that you deserve.