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The Kentucky Derby was run today: what are the tax consequences of the gift of your horse to charity

Introduction

You could sell your horse and donate the proceeds; then we’re talking about a cash gift. But if you’ve owned the horse more than two years, the horse could be treated as a long-term capital asset. [Generally speaking, you only have to own property for more than one year to claim long term capital gain status, but horses must be owned for two years.]

Basic requirement

To receive a deduction, make certain the organization you choose to receive your horse is certified by the IRS as a charitable organization. You can check out the organization with a search on the IRS website here.

The concept of “related use”

Has the value of your horse increased or decreased since you purchased the horse? If the value has decreased, then the use of the horse by the nonprofit to which you donated the horse does not matter. If the value of your horse has increased, however, the concept of “related use” kicks in.

If appreciated property is considered related to the nonprofit’s exempt purpose, the deduction is based on fair market value and available to the extent of 30% of the donor’s adjusted gross income. If property is considered unrelated to the public charity’s exempt purpose, the deduction is based on the lesser of fair market value and cost basis, and is available to the extent of 50% of donor’s adjusted gross income.

So, for example, if you donate your horse to a youth homeless shelter, so the youth can care for  the horses, my best guess would be that you can’t deduct the full value, as the shelter’s charitable purpose does not really have anything to do with horses. Donating to a therapeutic horse riding center I believe would allow full deduction since horses are obviously used to fulfill the nonprofit’s major charitable purpose.

Valuation requirements

Here’s a simple explanation of IRS record keeping rules for the charitable deduction:

Gifts of less than $250 per donee — you need a cancelled check or receipt

$250 or more per donee — you need a timely written acknowledgement from the donee

Total deductions for all property exceeds $500 — you need to file IRS Form 8283

Deductions exceeding $5,000 per item — you need a qualified appraisal completed by a qualified appraiser

I provide details on substantiation requirements in a blog post here.

Conclusion

A gift of a horse of course could provide helpful tax benefits. But proceed with due care.

Gordon Fischer Law Firm, P.C. is dedicated to promoting and maximizing charitable giving in Iowa. Gordon can be reached by phone at 515-371-6077; by email at gordon@gordonfischerlawfirm.com; and through his website at www.gordonfischerlawfirm.com.

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