Yes, goodwill is generally subject to tax when a business is sold, usually taxed as a capital gain. For holdings longer than a year, it is taxed at long-term capital gains rates (0% to 20%), which is typically lower than ordinary income tax rates. Personal goodwill can sometimes offer better tax treatment than corporate goodwill.
If you itemize deductions on your federal tax return, you may be entitled to claim a charitable deduction for your Goodwill donations. According to the Internal Revenue Service (IRS), a taxpayer can deduct the fair market value of clothing, household goods, used furniture, shoes, books and so forth.
Key Takeaways. Goodwill is taxable because it represents intangible assets—such as reputation and customer relationships—that increase a company's value.
This gain is taxed under capital gains tax rules. If the goodwill has been held for more than one year, the long-term capital gains tax rates, as of 2024, are typically 0% for lower income brackets, 15% for middle income brackets, and 20% for higher income brackets.
Goodwill. If goodwill is not recognised for tax purposes, its tax base is nil (no deductions are available) Revenue in advance. If the revenue is taxed on receipt but deferred for accounting purposes, the tax base of the liability is equal to equal to nil (as there are no future taxable amounts).
Prepare Your 2025 Taxes for Free
Goodwill has partnered with Associated Ministries and the IRS to provide free assistance with filing personal and small business Federal Income Taxes through our VITA Tax Center.
The $500 threshold for noncash donations means you must file IRS Form 8283, "Noncash Charitable Contributions," if your deduction for a single item or group of similar items exceeds $500 but is under $5,000, requiring details like acquisition, cost, and fair market value. For donations over $5,000, you need a qualified appraisal, and for vehicles, special Form 1098-C rules apply, but generally, the $500 mark triggers extra paperwork beyond just a written receipt.
The buyer typically wants a low amount of goodwill and high equipment allocation. You, as the seller, will want high goodwill allocation with less toward things like equipment and training. Why? You (the seller) will pay more in taxes if the allocation to equipment is higher.
Section 197(d)(1) provides that the term “section 197 intangible” means (A) goodwill; (B) going concern value; (C) any of the following intangible items: (i) workforce in place including its composition and terms and conditions (contractual or otherwise) of its employment, (ii) business books and records, operating ...
The thing with sales tax is it is not the nonprofit paying the tax. It is actually the people purchasing from the nonprofit. The nonprofit then collects the sales tax and reports it to the state department of revenue (similar to buying things at Walmart).
The general rule is that no tax relief is available for the purchase of goodwill or other intangibles (since it is a capital asset). However, in some specific cases, tax relief is available for the accounts amortisation of goodwill or a statutory write-off of the goodwill.
Donating clothing doesn't just help Goodwill—it helps your community. “Clothing makes up about 60% of our sales floor,” Julie explains. “So every item donated helps generate store revenue, which funds our workforce programs and community services.” And it's not just about what sells in stores.
For any contribution of $250 or more (including contributions of cash or property), you must obtain and keep in your records a contemporaneous written acknowledgment from the qualified organization indicating the amount of the cash and a description of any property other than cash contributed.
The IRS has a helpful booklet on this subject, Publication 561: Determining the Value of Donated Property. For items valued at more than $500, you'll need to fill out Form 8283 and attach it to your return. On this form you have to: describe each item over $500 that you donated.
The IRS allows you to deduct fair market value for gently-used items. The quality of the item when new and its age must be considered. The IRS requires an item to be in good condition or better to take a deduction. Our donation value guide displays prices ranging from good to like-new.
Rating Information
This charity's score is 90%, earning it a Four-Star rating.
Starting in 2026, the One Big Beautiful Bill Act (OBBBA) introduces a new $2,000 charitable deduction for non-itemizers (up to $1,000 for singles) on cash gifts to qualified charities, providing a tax break for the majority of Americans, while itemizers face a new 0.5% AGI floor, meaning only contributions exceeding that threshold are deductible, making strategic giving in 2025 important for some.
When you drop off your donations at Goodwill, you'll receive a receipt from a donation attendant. Hang on to this receipt. At the end of the year, if you itemize deductions on your taxes, you can claim a tax deduction for clothing and household items that are in good condition.
Use caution when claiming on tax without receipts
If you don't have much in the way of deductible claims to make on your tax, you should not automatically claim an amount up to the $300 limit just because you can. The same applies for the $150 limit for laundry and the small expenses limit of $200.