Reuse Development Organization

Home

Benefits of Redo

Benefits of Reuse

Material Donation Program

Reuse Publications

Find a Reuse Center

Tax Questions

Reuse Development
Organization, Inc. (ReDO)
c/o The Loading Dock
2 North Kresson Street
Baltimore, MD 21224
Phone:  410.558.3625 ex. 15
Fax:  410.558.1888
E-Mail: info@redo.org
 
 
 

What is the incentive to donate inventory?


Congress provides incentives under the tax laws to encourage donation of inventory to non-profit organizations.  These laws provide an incentive to businesses for donating slow-moving items prior to marking down the price.  By donating items that today are collecting dust on a warehouse floor or a retail outlet shelf, donors can save the cost of  other expenses related to maintaining the inventory, including the cost of warehousing, handling, and/or disposing of the items.

Internal Revenue Code, Section 170e3 creates an enhanced deduction for corporationsto take a deduction up to twice the cost of producing an item (when the value is higher than the cost).  Before the enhanced deduction was put in place, companies could only deduct an amount equal to their cost for an item donated to an IRS 501c3 public charity. However, the inventory or other property may have a fair market value higher than its cost. Under 170e3, an enhanced deduction allows the donor to take a deduction up to twice the cost/basis of the item if the value is higher than the cost.

Donated property under 170e3 must be used for the ill, needy or infant (using IRS definitions).  Equipment used by a facility providing service to the needy also qualifies.  The same acknowledgement requirements that apply for any donations still applies under 170e3 donations.  Though materials that are donated under 170e3 cannot be resold, organizations may charge a “user fee, handling fee, or donation fee” to recoup their expenses.

How does the enhanced deduction under 170e3 work?  See the sample computation below and work with your accountant or tax advisor to see how you can benefit from donation of inventory. 

Sample Computation

Fair Market Value (Selling Price) = $1,000
Basis (Cost to Company)= $  200
Gain = (Difference between FMV and Basis, or “mark up“)= $  800

Step 1:        Determine the Gain

Fair Market Value $1000 - Basis  $200= $  800
Step 2:  Reduce the deduction to not more than 1/2 the gain
Gain  $800  x  1/2 = $  400
Fair Market Value $1000 - 1/2 Gain $400  = $  600

Step 3: The deduction cannot exceed twice the basis or cost

$600 - 2 x Basis (2 x $200 = $400) = $  200

Step 4:  Add the limitation in Step 1 to the limit in Step 2 and subtract from the fair market value to determine  the deduction

$1000 - Gain ($400 + $200) = $  400

Deduction = Twice the Cost

The IRS allows a company to take up to half the gain (mark-up) on an item,

but not more than twice what the company paid for it.
 

 
Site Maintained By:
 

 

 
 
 
 

For more information on ReDO’s Donations Program, contact:

Leslie Kirkland, Executive Director
Reuse Development Organization, Inc. (ReDO)
c/o The Loading Dock
2 N Kresson St, Baltimore, MD 21224
Phone:  410-558-3625 ext 20
Fax:  410-558-1888

 

ReDO:  Making more reuse happen faster!

Previous