Ask the taxgirl: Donating an Engagement Ring

Taxpayer asks:

Hi Tax Girl!
I got rid of the husband and now I would love to get rid of the engagement ring. I have thought about donating it to a non-profit animal rescue group for them to auction at one of their charity events. What kind of deduction will I be able to claim and is there any kind of red tape I will have to go through to be able to do this?

Taxgirl says:

Well, good for you!

A couple of things…

The first is that you should check with the non-profit first to make sure that they can use your ring in their auction. Generally, to claim the full charitable deduction, the charitable organization must be able to use (or quickly liquidate) the item. So, you can’t, for example, deduct stock in a closely held corp that’s impossible to redeem or a year’s supplies of steaks to PETA. So, step one: make sure that the charity can use it and will acknowledge the donation.

Step two: get an appraisal. Check out my prior post which references appraisals and fees. Keep in mind that the appraisal should describe the style of the jewelry, the cut and setting of the gem, and whether it’s considerable fashionable. If it’s not in fashion, the appraisal should reference any change in value if the ring is recut or reset.

If the ring is valued at over $5,000, special rules apply (check out Section B of form 8283 which will download as a pdf, if that’s the case).

That said, unlike the wedding dress mentioned in my prior post, jewelry is not considered a “household item.” It’s actually considered a capital gain item and the rules can be a little complicated here since the item is to be sold by the charity. Depending on the length of time you’ve held the ring and its value, there may be some restrictions which apply. For example, which respect to property held for less than one year, the IRS only allows you to claim the purchase price. So, be careful.

The bottom line is that this one can be a little bit tricky depending upon the value of the ring, the appreciation (if any) from the purchase price and the length of time you’ve held the ring. I absolutely recommend checking with a tax pro for the specifics (remember that the cost of the tax pro’s services is also deductible).

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

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7 thoughts on “Ask the taxgirl: Donating an Engagement Ring

  1. Quote, “remember that the cost of the tax pro’s services is also deductible”

    (not trying to be critical just adding this in)
    I am a Tax Pro with a major Tax Prep firm. We have gotten used to telling clients the quote above, when I teach tax classes or speak I have to remind folks that the answer to every tax question is “it depends”. The tax prep fee is in the part of the Sch A that has a 2% floor. In other words only the amount in this section over 2% of AGI is dedutible. I hate to disappoint clients by telling them something is dedutible and then it has no effect on the bottom line of their tax return.

  2. I’m an activities director at an aged home. I would like to go to local businesses an ask for donations for our games and tournaments for prizes. Do I need to have any type of paper work legally to proceed on this course?x

  3. I presume you are a non-profit charitable organization. You should be prepared to give receipts, and record the donations from each business you accept a donation. This is income to your organization, so get with your financial officer.

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