How to Value Gifts in Kind: A Practical Guide for Nonprofits

How to Value Gifts in Kind: A Practical Guide for Nonprofits

Gifts in kind can stretch a nonprofit’s budget, expand programs, and help an organization serve more people. They can also create accounting problems when they are recorded inconsistently, valued without support, or confused with the donor’s charitable deduction.

The key is to treat every noncash contribution as a real financial transaction. Your nonprofit needs to determine what it received, whether it should be recognized under generally accepted accounting principles, how to measure it, and what documentation to keep.

What Is a Gift in Kind?

A gift in kind is a contribution of goods, services, or the use of property rather than cash. Common examples include:

• Food, clothing, books, medical supplies, and program materials
• Computers, furniture, vehicles, equipment, land, or buildings
• Professional services such as legal, accounting, medical, design, or technology work
• Free or below-market use of office space, event space, equipment, or other facilities

These contributions may reduce what your nonprofit would otherwise spend. However, not every helpful donation is automatically recorded as contribution revenue under GAAP.

Accounting Value and Donor Tax Value Are Not the Same

This is one of the most important distinctions in gift-in-kind accounting.

Your nonprofit determines the amount reported in its financial statements under accounting standards. The donor determines the amount of any charitable deduction under tax law, often with help from a tax adviser or qualified appraiser.

A nonprofit acknowledgment should describe donated property, but it generally should not state the property’s value. The donor is responsible for substantiating the value claimed for tax purposes.

For donated services, the distinction is even clearer. A nonprofit may be required to recognize the value of certain contributed services in its financial statements, while the person donating time generally cannot deduct the value of those services on a federal income tax return.

Step 1: Determine Whether the Contribution Should Be Recorded

Donated goods and other nonfinancial assets

Donated goods and property are generally recognized at fair value when the nonprofit receives them. This may include supplies that will be used in programs, items held for distribution, equipment, vehicles, or facilities provided without charge.

Donated services

Most volunteer time is valuable to the mission, but not all volunteer time is recorded in the financial statements. Contributed services are generally recognized when they either:

• Create or enhance a nonfinancial asset, or
• Require specialized skills, are provided by someone possessing those skills, and would typically need to be purchased if they were not donated

For example, donated legal work, licensed medical services, or professional accounting services may qualify. General volunteer activities, such as helping at an event or stuffing envelopes, usually do not meet the recognition criteria, even though they remain important to the organization.

Step 2: Measure Fair Value on the Date of the Gift

Fair value is based on the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. In practical terms, ask what a knowledgeable buyer would pay for the same or a comparable item in its current condition and in the relevant market.

Use the value as of the date the nonprofit receives the contribution. Do not automatically use:

• The donor’s original purchase price
• The donor’s estimate
• The highest retail price you can find
• The amount your nonprofit hopes the gift is worth

Condition, age, quantity, location, expiration dates, obsolescence, and the market in which comparable items are commonly sold may all affect the value.

Step 3: Select a Reasonable Valuation Method

The best valuation method depends on what your organization received.

• Observable market prices: Use quoted prices or completed sales for identical or comparable goods when reliable information is available.
• Comparable pricing: Use prices for similar items and adjust for condition, age, quantity, quality, location, or other differences.
• Wholesale or volume pricing: If the nonprofit receives a large quantity, a wholesale market may be more appropriate than adding up individual retail prices.
• Replacement cost: For certain assets or services, consider what the organization would pay to obtain an asset or service with comparable utility, with appropriate adjustments.
• Professional service rates: Use reasonable rates for comparable services in the relevant location and market.
• Qualified appraisal: Complex, unusual, or high-value property may require assistance from an independent valuation professional.

Be careful with donated goods that are close to expiration, technologically outdated, damaged, restricted in use, or difficult to distribute. A full retail price may materially overstate their fair value.

Step 4: Document the Valuation

Your accounting file should show how the amount was determined. Keep documentation such as:

• Date received and a clear description of the contribution
• Quantity, age, condition, and any restrictions
• How the nonprofit used, plans to use, or monetized the contribution
• Market sources, comparable sales, vendor quotes, rate schedules, or appraisals
• Adjustments made for volume, condition, expiration, obsolescence, or location
• The calculation and the person who reviewed or approved it

A consistent gift-in-kind policy makes this process much easier. The policy should define who accepts donations, which gifts the organization will accept, who determines the accounting treatment, which valuation sources are allowed, what documentation is required, and who approves significant estimates.

Step 5: Record Both Sides of the Transaction

A gift in kind usually affects more than contribution revenue. The other side of the entry depends on what was received and how it was used.

• Supplies held for future use may be recorded as an asset and expensed when used.
• Goods distributed to beneficiaries may result in contribution revenue and program expense.
• Equipment, vehicles, or buildings may be capitalized and depreciated.
• Qualifying donated professional services may be recorded as contribution revenue and the related functional expense.
• Donated items sold at a fundraising event may involve contribution revenue, event reporting, and the subsequent sale of the item.

Recording only the revenue side will overstate net assets. Recording only the expense or asset side will understate contribution revenue. The entry must reflect the complete transaction.

Step 6: Present and Disclose Gifts in Kind Properly

Under current GAAP, contributed nonfinancial assets must be presented as a separate line item in the statement of activities, apart from cash and other financial contributions.

The financial statement notes must also provide information by category, including:

• The types of contributed nonfinancial assets recognized
• Whether the assets were used or monetized during the period
• The programs or activities that benefited from assets that were used
• The organization’s policy for monetizing rather than using donated assets
• Any donor restrictions
• The valuation methods and principal markets used to determine fair value

These disclosures help boards, donors, auditors, and other readers understand how much of the organization’s reported support came from noncash contributions and how those resources supported the mission.

Step 7: Check the Form 990 Reporting

Gifts in kind may also affect Form 990. An organization filing the full Form 990 reports noncash contributions included in contribution revenue. If aggregate noncash contributions exceed $25,000, the organization generally must complete Schedule M. Certain contributions, including art, historical treasures, and qualified conservation contributions, can also trigger Schedule M regardless of the total amount.

Form 990 and Schedule M do not treat every contributed item the same way. For example, Schedule M generally excludes donated services and the donated use of facilities. That is one reason the accounting records, audited or reviewed financial statements, and Form 990 may require a careful reconciliation.

What Should the Donor Acknowledgment Say?

For a noncash contribution, the acknowledgment should identify the organization, state the date, and describe the property received. It should also state whether the nonprofit provided any goods or services in exchange for the contribution.

Do not place your nonprofit’s estimated value of the donated property on the acknowledgment. The donor is responsible for determining and supporting the value used for a charitable deduction.

When a donor claims a deduction of more than $5,000 for certain donated property, the donor may ask an authorized representative of the nonprofit to sign Form 8283. The signature generally acknowledges receipt of the property. It does not mean the nonprofit agrees with the donor’s appraised value.

Common Gift-in-Kind Mistakes

• Using the donor’s estimate without independent support
• Using retail prices for large wholesale quantities
• Ignoring condition, expiration dates, or obsolescence
• Recording all volunteer hours as donated services
• Recording contribution revenue without the related asset or expense
• Putting the nonprofit’s valuation on the donor receipt
• Failing to reconcile the financial statements with Form 990 reporting
• Keeping no written valuation method or supporting evidence

The Bottom Line

Gifts in kind can provide tremendous value to a nonprofit, but the accounting should be as disciplined as it is for cash. Identify what was received, determine whether it qualifies for recognition, use a supportable fair value, record both sides of the transaction, and keep the documentation needed for financial statement and Form 990 reporting.

Need Help Accounting for Gifts in Kind?

The NonProfit CPA helps nonprofit organizations establish practical accounting procedures, record noncash contributions correctly, prepare clear financial reports, and reconcile gift-in-kind activity for Form 990 reporting.

If your nonprofit receives donated goods, professional services, facilities, equipment, or other noncash support, schedule a conversation with The NonProfit CPA.

This article provides general information and is not legal, tax, or accounting advice for a specific organization or donor.