What this line means
What you originally paid for the donated property, adjusted for any improvements or depreciation. For purchased items, this is the purchase price. For inherited property, this is the fair market value at the date of the decedent’s death (stepped-up basis). For property you created, this is the cost of materials and supplies only — not the value of your time or labor.
Does this apply to you?
- You know how much you paid for the property you donated
- You inherited the donated property and need to use the stepped-up basis
- You created the donated item (artwork, crafts) and need to determine your material cost
- You need to compare your basis to fair market value for deduction purposes
Easy to overlook
Artists and creators deduct only material costs, not the value of their work If you are an artist who donates a painting, your deduction is limited to the cost of canvas, paint, and supplies — not the painting’s fair market value. The IRS treats self-created property as ordinary income property, which limits the deduction to cost basis regardless of holding period. A painting worth $10,000 with $200 in materials yields a $200 deduction. 1 IRS Publication 561 — Determining the Value of Donated Property
Depreciated business property uses the adjusted basis, not original cost If you donate a computer you used in your business for three years and depreciated, the basis is the original cost minus accumulated depreciation. A $2,000 computer with $1,500 in depreciation has a $500 adjusted basis. Using the original $2,000 cost overstates your deduction. 2 IRS Form 8283 instructions — Section A
Watch out for this
Entering zero because you do not remember what you paid. The IRS requires a reasonable estimate of your cost basis. For everyday items, use your best recollection of the purchase price. If you genuinely have no record, provide a reasonable estimate based on what similar items cost at the time you bought them. Zero basis combined with a significant FMV claim raises audit flags.
Footnotes
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IRS Publication 561, Determining the Value of Donated Property, Property Created by Donor. https://www.irs.gov/pub/irs-pdf/p561.pdf ↩
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IRS Form 8283 Instructions, Section A, Column (e). https://www.irs.gov/instructions/i8283 ↩