Restricted In-Kind Gifts: How Nonprofits Handle Them

Yes, a donor can restrict an in-kind gift, and when they do, the nonprofit has to honor the restriction and report the gift differently. A restriction is a donor stipulation that limits how or when the gift can be used, such as "these laptops are for the after-school program only." Under current nonprofit accounting rules, a gift with that kind of limit is reported in a different net asset class than an unrestricted gift.

This matters for item donations more than most teams expect, because in-kind gifts are often restricted by nature. A donor who buys a specific item for a specific program has, in effect, designated it.

What counts as a donor restriction

Nonprofit financial statements use two net asset classes. Since FASB's ASU 2016-14, temporarily restricted and permanently restricted net assets are combined into "net assets with donor restrictions," and unrestricted net assets are renamed "net assets without donor restrictions," as the Journal of Accountancy summarized when the standard was issued.

A restriction comes from the donor, not the nonprofit. Typical in-kind examples:

• "These winter coats are for the youth shelter."
• "This freezer is for the pantry's Saturday distribution."
• "These books are for the literacy program only." A nonprofit's own plan for an item isn't a restriction. If your board decides to put donated desks in the teen room, that's internal designation, not donor restriction. The distinction decides how the gift is reported.

Restricted versus designated, in plain terms

• Donor-restricted: the donor set the limit, in writing or in how the gift was solicited. The nonprofit is bound.
• Board-designated: the nonprofit set the limit. The board can change it.
• Implied: the gift came through a campaign with a stated purpose ("Funding laptops for our coding class"). A reasonable donor expects the gift to go to that purpose, so many organizations treat it as restricted. Confirm the treatment with your auditor. When you aren't sure, write to the donor and ask. A one-line reply like "Please use for any program" turns a restricted gift into an unrestricted one.

How a restricted in-kind gift gets recorded

A short version of the mechanics, which your CPA should confirm for your specific facts:

1. Record the gift at fair value when you receive it, like any other contributed nonfinancial asset.
2. Classify it as with or without donor restrictions based on the donor's stipulation.
3. Release the restriction when the condition is met. For a gift restricted to a purpose, the restriction is released when the nonprofit uses the item for that purpose. For an item distributed straight to a program client, that often happens almost immediately. Some organizations whose restrictions are met in the same reporting period use an accounting policy that lets them report the gift as without donor restrictions. That policy choice belongs in your financial statements' notes and needs your auditor's agreement.

The 3 mistakes that cause trouble

Pooling restricted items with everything else. If the coat drive was for the youth shelter, don't send the surplus to the adult program without checking. Spending a restricted gift on something else is a compliance problem and a trust problem.

No record of the restriction. The restriction exists when the donor states it, but you can only prove it if it's written down. Keep the wishlist page, the email or the campaign copy.

Treating every item purchase as unrestricted. A donor buying a specific item you listed for a specific need is a strong signal. Ask your auditor how your organization should treat that pattern before year-end, not after.

What to do if you can't use the gift as intended

Sometimes a restricted gift can't be used as the donor wanted. A program closes, or you receive 40 laptops when you needed 12. Don't quietly redirect them. Contact the donor, explain the situation and ask for written permission to use the gift another way. If the donor can't be reached, check with your attorney, because the rules for modifying restrictions depend on your state.

Where a wishlist fits

A public wishlist of specific items for specific programs lets donors choose a target for their gift, and it leaves a clear record of what was asked for. Givelink is a free in-kind donation platform built around that model: nonprofits list the exact items they need, and donors fund them. Because every gift ties to a named need, the paper trail is built into the process, which makes restricted-gift tracking simpler to explain to an auditor. Confirm how your auditor wants it documented.

Frequently asked questions

Is an in-kind gift for a specific program automatically restricted? Not automatically. It's restricted if the donor stipulated the use, in writing or through a campaign with a stated purpose. If you're unsure, ask the donor to clarify and keep the answer on file.

Do restricted in-kind gifts need to be reported differently on the 990? The Form 990 has its own rules separate from GAAP statements. Ask your preparer how restricted in-kind gifts should be reported on your return.

Can the board override a donor's restriction? No. Only the donor can lift it, or a court in limited cases. A board can designate unrestricted funds, but it can't redirect a donor-restricted gift on its own.

Who decides whether a gift is restricted? The donor's stipulation decides. Your auditor or CPA confirms the accounting treatment, and your attorney helps if you need to change a restriction.

Next step

Add a one-line donor-intent field to your in-kind intake form ("Is this gift for a specific program?") and save the answer with the receipt. To see how a nonprofit lists specific items for donors to fund, read how Givelink works.