Re: Valuing a charitable donation

By that theory, if I paid $1,000 for an item, it broke the next week so I had it replaced under warrantee, and I donated the replacement, I couldn't get any deduction for the donation.

In reality, the replacement cost $400 + warranty cost + $4000 for the original (since it wouldn't have been available without the purchase of the original).

Isn't there a "tax benefit" rule? (Suppose only $50 of the cost were deductible due to the limitation/exclusion; couldn't all except $50 of the value be deductible as a contribution?)

Also, to the extent insurance paid for the item, that isn't deductible.

Seth

Used hearing aids are worth a lot less then what one pays for them. As such, a disposition at fair market value (FMV) would not generate a capital gain. So, we are not dealing with a capital asset. Therefore, the amount one can deduct is the lesser of FMV or adjusted cost basis.

Let's start with your adjusted cost basis. You inherited the item in

2010. Under the estate tax law that existed at the time of death, you could choose to accept the item at its cost basis or elect to step it down to FMV on the date of death. Under the new tax law the hearing aid would be stepped down to FMV. You either have an item with a basis of $4400 or a basis equal to a lower FMV.

As the amount you can deduct is the lesser of FMV or your adjusted cost basis on the date of contribution and the date of contribution was real close to the date of death, one can say that the answer is going to be the FMV of the hearing aid on or about the date of death.

I was asked once before how one would obtain the FMV of a used hearing aid, especially one that is custom fitted. (I assume that for $4000 this aid was probably molded to the shape of his ear.) A custom fitted aid would have to be returned to a manufacturer or repair center with a new mold and the interior electronics removed and placed inside the new fitted piece. Given this cost, plus a limited market for used aids, the FMV would probably be a very small percentage of retail value. If it was a behind the ear (BTE) type, then a good cleaning and possible replacement of the ear insert would not cost that much. There is still a limited market. Its fair market value would be a higher percent of retail then any of the in the ear types.

I could only find one place that had a market for selling used hearing aids.

So what I am telling you is that the amount you can deduct is its FMV at the time of contribution. You said he had received it one month before he died. As such, it is a used hearing aid. Even if it was still in the box and had never been worn, you would still be limited to FMV. FMV is what a willing buyer would pay a willing seller with both having knowledge of all of the relevant facts surrounding the sale. It's going to be some number considerably less than $4000.

The charitable deduction is the lesser of cost ($400 + $4000 = $4400) or FMV.

It cost $400 because it was under warranty/insurance. If your house burns down and you rebuild using insurance proceeds, do you have a zero basis in the house? No.

In this case the hearing aid has a market value, probably less than the original purchase price. OP's audiologist may be able to give her an authoritative opinion about what its actual worth is. That's the amount that should be deductible.

Yup, you can only deduct things once each. Usually.

: 1) The replacement hearing aid only cost $400. You are limited to that. : 2) You may take a charitable deduction ONLY if you haven't taken a medical : deduction for the item.

Thanks you for the information. I will see if it makes enough sense as a medical deductin to raise m medical and medical insurance expenses to enough to get any deduction for tht at all. If I have no medical deduuctioon then it will go into charity.

Wendy

: > In reality, the replacement cost $400 + warranty cost + $4000 for the : > original (since it wouldn't have been available without the purchase : > of the original).

: The charitable deduction is the lesser of cost ($400 + $4000 = $4400) : or FMV.

In that case, I should be able to deduct the cost of a one month old $4,000 hering aid, say $3,500 to not be too greedy?

Wendy Baker

Alan wrote: : On 12/20/10 10:04 AM, W. Baker wrote: : > As I wroe in my last post, my husband died this yer. he had a hearing : > aid, which had originally cost over $4,000 2 years ago. This hearing aid : > was lost by the nursing home he was in for rehab(don't ask!). It was : > replaced under warranty for $400 dollars. About 1 month after he got the : > replacement he died. I donated this practically brand new hearing aid to : > a legitimate charitable organization that helps peope with hearing : > problems. My question is can I deduct $4,000 as the hearing aid was : > actually new? Can I deduct the $400 , the warranty cost or What? As the : > hearing aid had approximtely a three year life, had he still had the old : > one, I might have thought to deduct $1,300 but this is actually a brand : > new one. : >

: > HELP! : >

: > Wendy Baker : >

: Used hearing aids are worth a lot less then what one pays for them. As : such, a disposition at fair market value (FMV) would not generate a : capital gain. So, we are not dealing with a capital asset. Therefore, : the amount one can deduct is the lesser of FMV or adjusted cost basis.

: Let's start with your adjusted cost basis. You inherited the item in : 2010. Under the estate tax law that existed at the time of death, you : could choose to accept the item at its cost basis or elect to step it : down to FMV on the date of death. Under the new tax law the hearing aid : would be stepped down to FMV. You either have an item with a basis of : $4400 or a basis equal to a lower FMV.

: As the amount you can deduct is the lesser of FMV or your adjusted cost : basis on the date of contribution and the date of contribution was real : close to the date of death, one can say that the answer is going to be : the FMV of the hearing aid on or about the date of death.

: I was asked once before how one would obtain the FMV of a used hearing : aid, especially one that is custom fitted. (I assume that for $4000 this : aid was probably molded to the shape of his ear.) A custom fitted aid : would have to be returned to a manufacturer or repair center with a new : mold and the interior electronics removed and placed inside the new : fitted piece. Given this cost, plus a limited market for used aids, the : FMV would probably be a very small percentage of retail value. If it was : a behind the ear (BTE) type, then a good cleaning and possible : replacement of the ear insert would not cost that much. There is still a : limited market. Its fair market value would be a higher percent of : retail then any of the in the ear types.

: I could only find one place that had a market for selling used hearing aids. :

: So what I am telling you is that the amount you can deduct is its FMV at : the time of contribution. You said he had received it one month before : he died. As such, it is a used hearing aid. Even if it was still in the : box and had never been worn, you would still be limited to FMV. FMV is : what a willing buyer would pay a willing seller with both having : knowledge of all of the relevant facts surrounding the sale. It's going : to be some number considerably less than $4000.

: -- : Alan :

My husband was extrremely deaf. The hearing aid he used was a behind the ear model, with the electronics not in the ear. As plastic mold, that was relaced about every year was connected by a tube to the behind the ear electronics, etc. this mold cost somewhere between $100- and $150 and was included in the $400 for the new aid. that is why I donated the aid and the organization accepted it, because a recipient (or charitable payer) would only have to buy a ne plastic ermold for about $ 150 , to be generous. I don't think that the organization would have been interested in one of the standard in the ear models. I really, was not trying to manufacture a deduction, but to see that a very good product could help someone who coul dnot afford to buy one for hirself.

Wendy Baker

That's great and I do the same thing. It's just that there is very little market for used or even never worn hearing aids. Take a look at the site I recommended and try an Internet search and then arrive at a value you can feel comfortable with should the IRS ever decide to ask for your substantiation.

If the FMV is $3,500 then yes. Look at the link Alan posted to see what the going rate for used hearing aids with the electrical unit outside the ear is. You can also search on EBay to get an idea of prices, but we had a long discussion about this once and it's not clear if the IRS will accept EBay values. You can also contact an appraiser, and the fees you pay the appraiser are deductible subject to the 2% of AGI rule.

Fair market value means what a willing buyer would pay a willing seller. If the average person would pay $3500 for a one-month old hearing aid, then that would be appropriate. My guess is that it would be less than that.

For one thing hearing-aid technology is constantly changing. If it's an older (more than one year old) model it will be worth less even if it's relatively new.