How familiar are you with the IRS' Related Use Rule? In this episode of the BIF Bites podcast, Jerry dives into the 2010 Hobby Lobby Scandal and the purchase of smuggled artifacts to what you need to know about how this relates to charitable donations on the CFP® Exam.
What Is the Related Use Rule?
The Related Use Rule determines the amount of charitable deduction allowable for gifts of tangible personal property, like art, collectibles, or artifacts, based on whether the charity or non-profit uses the property in a way that is related to its exempt purpose.
So, if a donor gives a tangible item of personal property to a charity, and the organization uses it in a manner consistent with its charitable mission, this is referred to as a related use. For example, an individual donates a sculpture to an art museum for display, this would be a related use, and the donor's tax deduction would be based on the fair market value of the property.
On the other hand, if a donor donates the sculpture to an animal shelter, and the shelter sells it to use the money to fund operations, the charitable deduction would be limited to the cost basis in the property.
