I frequently receive calls regarding valuation for non-cash charitable donations, so I’d like to address questions from an appraiser’s point of view. I cannot give tax advice, so a consultation with the appropriate professional is recommended.
Prior to accepting the assignment, the appraiser will ask a number of questions:
What do you have to donate? How were the items acquired? Which charity are you donating to and is it a related use? When is the date of donation? Is it a 100% interest and unrestricted donation?
When is an appraisal required?
A Qualified Appraisal is required if an item or group of similar items has a Fair Market Value of $5,000 or more. It is also required if an item is worth $500 or more and is in less than good (e.g. poor) condition. The appraiser will also complete the appropriate sections of IRS Form 8283. The reporting requirements increase as the value of the donation increases.
Which value is used in donation appraisals?
The appropriate level of value for most tangible personal property donations is Fair Market Value defined by the Income Tax Regulations 1.170A-1(c)(2) as,
“The price at which the property would change hands between a willing buyer and a willing seller, neither being under compulsion to buy or sell, and both having reasonable knowledge of all relevant facts.”
Many times this is what the item would sell for in its current used condition at an auction, estate sale, garage sale or wherever the appropriate market is for each item. There are special rules pertaining to business inventory and artist’s donating their own work. These are considered ordinary income properties and the deduction may be limited.
The IRS has established the following requirements:
- A Qualified Appraiser has earned a professional designation from a recognized professional appraiser organization for demonstrated competency in valuing the type of property being appraised, or has met certain minimum education and experience requirements.
- The individual regularly prepares appraisals for which he or she is paid.
- The individual demonstrates verifiable education and experience in valuing the type of property being appraised.
- The individual has not been prohibited from practicing before the IRS under section 330(c) of title 31 of the United States Code at any time during the 3-year period ending on the date of the appraisal.
- The individual is not an excluded individual.
Choose a 3rd-party independent appraiser that has no connection to the item, donor or donee. For example, the dealer who sold you the item would be an excluded individual.
Can the donor or donee tell the appraiser what values to place on the objects?
Absolutely not. The appraiser must independently arrive at a value through research of current market data. The appraiser is subject to stiff penalties from the IRS if the valuation is too high or too low.
What about the cost for storage, moving, cleaning, installation or maintenance of items donated?
These costs are not part of Fair Market Value and cannot be included on the appraisal. Consider donating money to cover some of these costs.
When does the appraisal need to be completed?
The appraisal should be completed no more than 60 days prior to the donation or anytime after, up to the deadline when the tax return is due.
Is the cost of an appraisal deductible?
The cost of the appraisal may be deductible under IRS Schedule A, Miscellaneous Deductions. Consult your tax professional.
Can the charity pay for the appraisal?
Usually the donor pays for the appraisal. If the donee pays, then the cost of the appraisal should be subtracted from the total amount of the donation.