Let’s address the elephant in the room: Does claiming a large tax deduction for donated building materials increase your risk of an IRS audit?

The honest answer is: It depends on your documentation.

The IRS uses automated algorithms to flag returns that look “unusual.” A $200,000 non-cash charitable contribution on a tax return with $150,000 of income will trigger a red flag. However, a “flag” does not mean a penalty; it simply means the IRS wants to check your math. If your documentation is bulletproof, you have nothing to fear.

The “Red Flags” You Must Avoid

The IRS consistently wins cases against taxpayers who make these specific mistakes:

1. The “Wild Guess” Valuation

You cannot simply guess that your used kitchen cabinets are worth $10,000. You cannot use the price of new cabinets at Home Depot as your baseline.

• The Rule: You must use the Fair Market Value (FMV) of the materials in their current condition. This is why hiring a qualified appraiser is non-negotiable for deductions over $5,000.

2. Missing Form 8283

This is a clerical error that costs millions. If you donate more than $500 in non-cash items, you must file Form 8283. If the value is over $5,000, you must complete Section B, which requires signatures from the appraiser and the charity.

• The Risk: Filing a return without this form is an automatic denial of the deduction.

3. Lack of Donative Intent

This is a subtler legal concept. You cannot receive a “quid pro quo” for your donation. If the deconstruction company “buys” the materials from you by reducing their bill, that is a sale, not a donation. The materials must be given freely to a non-profit.

4. The “Similar Items” Trap

The IRS aggregates similar items. You cannot donate $4,000 of lumber to Charity A and $4,000 of lumber to Charity B to avoid the $5,000 appraisal threshold. The IRS views that as $8,000 of “lumber,” requiring an appraisal.

How to Build an “Audit-Proof” File

To sleep soundly, you need to substantiate your claim with a fortress of paper:

• The Appraisal: A USPAP-compliant report with photos, comparables, and methodology.
• The Receipt: A Contemporaneous Written Acknowledgment (CWA) from the charity, dated on or before the day you file your return.
• The Inventory: Detailed lists of exactly what was harvested.

The Role of DDP in Risk Mitigation

This is where working with a specialized program reduces risk. Services like the audit risk mitigation strategies ensure that the “chain of custody” is unbroken. By overseeing the appraiser and the non-profit handoff, they ensure that the evidence file is complete before you ever file your taxes.

Conclusion

A large tax deduction is a privilege, not a right. The IRS is vigilant against abuse, but they are respectful of compliance. By adhering strictly to the guidelines of Section 170 and maintaining impeccable records, you can secure significant tax savings with confidence.

Would you like me to proceed with the next batch (Where to Donate, Commercial Plans, & FMV Methods)?