“Deconstructing” the rooms — taking them apart piece by piece — and donating the material not only benefits the environment but can help charitable organizations such as Habitat for Humanity and Community Forklift, and your wallet by providing a tax deduction.
The organizations will furnish receipts for the perceived value of the materials you contribute, which you can then write off at tax time. The tax deduction is limited to $5,000 because these organizations are not appraisers. This limitation is a key point to this process. So that kitchen you paid $50,000 for in 1995 would yield only a $5,000 write-off today.
But there’s another pathway to consider that would allow you to take a bigger deduction.
If the kitchen is relatively new, with stone counter tops and high-end appliances, you can easily and quickly reach that $5,000 threshold. To take a deduction of more than $5,000 worth of materials from the renovation project, the donated materials must be appraised by what the IRS refers to as a “qualified appraiser.”
My experience with this process began while designing a new kitchen for clients in Bethesda. Their old kitchen was beautiful, albeit a bit dated and not able to meet their needs. The cabinets were standard overlay, meaning there were two inches of cabinet revealed between cabinet doors.
The counter top was circa 1980s Ubatuba — the initial iteration of granite when the material first came into vogue. There was that ubiquitous builder’s soffit, pushing all the wall cabinets down from the ceiling.
The qualified appraisal firm visited the kitchen, took some pictures and measurements. The firm sent my clients a charitable donation proposal. Part of that proposal was its price to complete the appraisal and provide the documentation.
In the end, my clients donated their building materials to the nonprofit Community Forklift in Hyattsville, Md. They received a $34,000 deduction, which covered the extra cost of hiring the appraiser for $2,000 and the additional day of labor for deconstruction — $1,000. That’s a tenfold return on cost and an unexpected return on their old kitchen.
Here’s a step-by-step description of how to pursue the tax write-off for this kind of donation:
- Consult a tax professional to discuss your proposed deduction and to determine whether it is right for you. After all, you have to be able to get the tax deduction to make the extra time and effort worthwhile.
- Hire a firm with the proper credentials to perform charitable donation appraisals. The firm has to be able to value used building material. Appraisal organizations provide designations to appraisers interested in deconstruction. This is really the most important part to get right, because you need a defensible document in case your deduction is ever questioned by the IRS. The IRS requires an appraisal for any donation over $5,000 from a certified appraiser. Follow IRS guidelines. The agency requires a detailed scope of work and an accurate inventory of the items donated.
- Don’t donate your kitchen to a friend or relative if you expect to get a tax deduction. Choose a tax-exempt charitable organization to receive the donation. It must be a qualified 501(c)(3) charity. Also, it’s important to confirm that the nonprofit has an interest in the materials being donated and the capacity to accept them. Most organizations that accept building material donations provide a free pickup service.
- Choose a deconstruction company to dismantle your kitchen, bathroom or the whole house. Do not hire a demolition company. The deconstructors’ job is to ensure that everything removed from your home comed out intact and in good condition for re-installation in someone else’s home.
- Make sure the charity does the follow-up. The charitable organization should communicate with and document for the appraisal firm that it has, in fact, received the building material, and sign the IRS Form 8283 acknowledging receipt of it.
- Make sure the appraisal firm provides you a signed IRS 8283 form which you forward to your accountant. The IRS requires a detailed scope of work, and an accurate inventory of the items donated. The more thorough and extensive the package, the more defensible the donation will be if the IRS questions the values.
When the remodel has been completed, you can sit back, enjoy the new space and smile while contemplating the benefits you’ll receive in the upcoming tax season.
Gary Case is chief executive of Signature Kitchens Additions & Baths in Rockville, Md.