Donating a domain to charity can be greatly beneficial — but don’t expect to write-off the appraised value on your tax return.
A few weeks ago I wrote about the sale of Farm.com for $200,000. Details about this transaction have surfaced in the The Boston Globe, which explains that the owners of Farm.com donated it to the non-profit Boston Foundation, which in turn sold it to Pets United LLC.
With tax day just around the corner some people might think about donating domain names as a way to take a charitable write-off on next year’s tax return. But don’t get excited yet (unless, of course, your donation is purely from the bottom of your heart).
A couple years ago Congress figured out that people were taking advantage of non-financial donations. One of the biggest examples was car donations. People were donating old clunkers to charity and writing off the full blue book value as if the cars were in great shape. But another example that legislation took care of was intellectual property donations. Companies would donate patents to universities and write-off the full appraisal amount of the intellectual property. It’s extremely difficult to value intellectual property, and many of these patents are now sitting around collecting dust — despite corporations writing them off for millions.
The new rule is that you can write off the actual value realized by the non-profit organization. In the case of Farm.com, the charity sold the domains for $200,000 and the donors can write off that amount. But if they donated Farm.com and it hadn’t sold yet, they would not be able to write off anything (except for their original purchase price in certain circumstances). The same goes for big ticket merchandise donations like cars. You can deduct only the value the charity gets from selling the car (unless the charity retains it for its own use).
The article in The Boston Globe refers to another donor of domain names:
Rob Grant, owner of a Saranac Lake, N.Y., company that buys and sells domain names, will get a sizeable tax break for the 107 educational domain names, like bestliberalartsschool.com and topamericanuniversity, that he recently bestowed to his alma mater Prescott College in Arizona. Total appraisal: $99,040.
Sorry Rob, but that doesn’t mean you can write off $99,040 based on your appraisal. If BestLiberalArtsSchool.com was one of your top domain names, I can assure you that your appraisal is worthless 
Although you can claim the deduction, expect the IRS to get on your back for back taxes plus interest.
