In-Kind Donation Overview

In-Kind Donation Overview

Nonprofit organizations frequently receive in-kind donations—contributions of goods or services that support their mission.

These donations generally fall into three categories:

Tangible goods – furniture, equipment, clothing, supplies
Use of facilities and utilities – donated office space, equipment, or essential services such as electricity or telephone service
Donated services – professional volunteer services, including accounting, legal support, IT assistance, and fundraising aid, provided free or at a reduced rate

Receiving in-kind donations raises an important financial question: How should nonprofits record these contributions in accordance with GAAP?

GAAP Criteria for Recognizing In-Kind Donations

Under Generally Accepted Accounting Principles (GAAP), donated services can only be recognized in financial statements if they meet at least one of these criteria;

The service creates or enhances a nonfinancial asset (e.g., construction, equipment repair).
The service requires specialized skills and would have been purchased if not donated (e.g., legal, accounting, or consulting services).

Additionally, in-kind donations must be recorded at fair market value, using observable market inputs whenever possible.

Ineligible Contributions

Not all donations qualify as in-kind contributions. The following are generally excluded:

Designated Items – Goods assigned by an external entity may not be officially recognized as in-kind donations.
Nonessential Donations – Contributions unrelated to the nonprofit’s core mission should be evaluated before acceptance.
Conditional Gifts – Donations with restrictions attached do not qualify as in-kind contributions.
General Volunteer Hours – Ordinary volunteer time is not recorded unless it meets GAAP criteria (e.g., specialized professional services).

Valuation & Accounting Treatment

Once a donation qualifies as an in-kind contribution, it must be properly valued and recorded as contribution revenue. The accounting treatment depends on the donation type:

Goods – Valued based on the price the nonprofit would pay if purchasing the item directly.
Facilities – Measured using the cost the nonprofit would incur if paying for the donated space or utilities.
Services – Recorded only if they meet GAAP criteria. Valuation should reflect the cost of hiring the service if it were not donated.

FASB Reporting Requirements (ASU 2020-07)

The Financial Accounting Standards Board (FASB) issued ASU 2020-07, requiring nonprofits to separately present in-kind donations in financial statements instead of aggregating them with monetary contributions.

Nonprofits must disclose:

Categories of contributed nonfinancial assets
Valuation techniques and inputs used
Donor-imposed restrictions, if applicable
How the donation is used or monetized

IRS Reporting Requirements

Nonprofits must also comply with IRS regulations for in-kind donations, particularly when filing Form 990:

Schedule B – Required for organizations receiving more than $5,000 from a single contributor, including noncash contributions.
Schedule M – Mandatory for nonprofits receiving over $25,000 in noncash contributions or accepting specific asset types (e.g., art, securities, vehicles). Schedule M must disclose:
- Types of property contributed
- Number of contributions per category
- Whether contributions were sold, retained, or utilized
- Policies regarding noncash gift acceptance, including appraisals

Additionally, nonprofits must issue written acknowledgments for donations exceeding $250, including noncash gifts. These acknowledgments should include: