Nine Tips on Deducting Charitable Contributions from the IRS

The IRS has released a list of tips to assist with obtaining tax deductions on charitable contributions.  For non-cash contributions with a fair market value of $5,000 or more, a qualified appraisal is required by a “Qualified Appraiser”.  See tip #9.

 

 

IRS Tax Tip 2013-45, April 1, 2013

Giving to charity may make you feel good and help you lower your tax bill. The IRS offers these nine tips to help ensure your contributions pay off on your tax return.

  1. If you want a tax deduction, you must donate to a qualified charitable organization. You cannot deduct contributions you make to either an individual, a political organization or a political candidate.
  2. You must file Form 1040 and itemize your deductions on Schedule A. If your total deduction for all noncash contributions for the year is more than $500, you must also file Form 8283, Noncash Charitable Contributions, with your tax return.
  3. If you receive a benefit of some kind in return for your contribution, you can only deduct the amount that exceeds the fair market value of the benefit you received. Examples of benefits you may receive in return for your contribution include merchandise, tickets to an event or other goods and services.
  4. Donations of stock or other non-cash property are usually valued at fair market value. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to vehicle donations.
  5. Fair market value is generally the price at which someone can sell the property.
  6. You must have a written record about your donation in order to deduct any cash gift, regardless of the amount. Cash contributions include those made by check or other monetary methods. That written record can be a written statement from the organization, a bank record or a payroll deduction record that substantiates your donation. That documentation should include the name of the organization, the date and amount of the contribution. A telephone bill meets this requirement for text donations if it shows this same information.
  7. To claim a deduction for gifts of cash or property worth $250 or more, you must have a written statement from the qualified organization. The statement must show the amount of the cash or a description of any property given. It must also state whether the organization provided any goods or services in exchange for the gift.
  8. You may use the same document to meet the requirement for a written statement for cash gifts and the requirement for a written acknowledgement for contributions of $250 or more.
  9. If you donate one item or a group of similar items that are valued at more than $5,000, you must also complete Section B of Form 8283. This section generally requires an appraisal by a qualified appraiser.

For more information on charitable contributions, see Publication 526, Charitable Contributions. For information about noncash contributions, see Publication 561, Determining the Value of Donated Property. Forms and publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Source: IRS website

 

 

 

ESTATE / LIFE PLANNING APPRAISALS

There are many times in a person’s life when they need to make plans regarding their collections and other personal property:

1) Estate planning

2) Downsizing

3) Distribution to family members

4) Donation

5) Tax planning

An essential part of this process is to have your collection appraised so that you can find out current values and make informed decisions.  The appropriate level of value is Fair Market Value.

Remember, it’s important to choose a qualified appraiser with a designation from a professional appraisal society.

It’s about planning for life’s important moments, and the future of your treasured collections and family heirlooms.

 

 

Charitable Donation Appraisal – FAQs

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.

Who is a Qualified Appraiser?

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.

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.

RESOURCES:

“To Give and To Receive – A Handbook on Gifts and Donations for Museums and Donors”

Guidestar

Planned Giving Design Center

IRS – Tax Information for Contributors

 

Personal Property Appraisals for tax deductions in Southern California
Personal Property Appraisals for tax deductions in Southern California

 

 

 

 

 

 

 

Estate and Probate Appraisals

There are many situations when an appraisal of personal property is needed for estates.  If someone calls and says “I need an estate appraisal”, a few additional questions should be answered so the proper service can be provided.  Depending on the circumstances, they may need an appraisal of the entire residential contents or just a specific list of items.  The intended use of the appraisal will guide us in the right direction:

ESTATE TAX:  Required by the Internal Revenue Service and many states.  If the total estate is over a certain value threshold (currently at $5 million), then everything needs to be appraised and valued as of the date of death (or alternate date).   The IRS requires a room by room inventory of the complete residential contents.  Items of low value under $100 Fair Market Value can be grouped together with similar items.   Many states follow the Federal level, however several states have a much lower threshold requiring an appraisal.

EQUITABLE DISTRIBUTION: To divide up items from the estate equally among the heirs.   This may require an appraisal of the total contents or a specific list of items, depending on the needs of the estate and the heirs.

ESTABLISH A BASIS: Valuing assets or a collection at a specific point in time can provide a benchmark so that the basis can be stepped up to the current value as of the date of death.  It can provide a comparison at a later time to illustrate growth or decline in value.

PROBATE:   The probate court will require an inventory and appraisal of the estate assets.  

TRUST INVENTORY: In California, the majority of estates are part of an established trust.   An inventory and appraisal establishes the value of the property at the time it became subject to the trust.

ESTATE PLANNING:  Planning for the future of an estate or collection is also important.  An appraisal can provide a valuable tool so that owners can plan in advance for tax, distribution or donation.  It can provide peace of mind for collectors to know how their treasured objects will be handled after they are gone.

In California, the appropriate level of value for each of these situations is Fair Market Value:

Fair Market Value is set forth in IRS Treasury Regulation 20.2031-1 which states that, “The Fair Market Value is 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 relevant facts.

The Fair Market Value of a particular item of property includible in a decedent’s gross estate is not to be determined by a forced sale price.  Nor is the Fair Market Value of an item of property to be determined by the sale price of an item in a market other than that in which such an item is most commonly sold to the public, taking into account the location of the item wherever appropriate.”

As an appraiser I cannot give legal or tax advice, so a consultation with the appropriate professional is recommended.

Choosing an appraiser that is impartial (not interested in buying or selling the estate),  credentialed, USPAP compliant and IRS qualified is very important.   It’s also recommended to hire an appraiser who is knowledgable about regional values and state laws including the correct wording for the document.

Personal Property Appraisals for estate Planning in Southern California
Personal Property Appraisals for estate Planning in Southern California

RESOURCES:

IRS: Estate Tax

California Probate Code

California Courts: Wills, Estates and Probate

State Bar of California: Do I Need Estate Planning?

 

Choosing Experts to Appraise Collectibles and Valuables

Antique Child's Sewing MachineThe New York Times recently published an article titled “The Specialized Art of the Appraisal”.   It stresses the importance of keeping tabs on your collection, knowing what you have and the values.

“Whether it is fine wines, vintage movie posters or abstract paintings, some people spend a great deal of time and money compiling collections of valuables. Even if they’re collecting out of personal passion, rather than as an investment, it makes sense to keep tabs on how much the collection is worth.”

An appraisal is an essential tool to accomplish this goal.  The article goes on to explain the importance of selecting the correct appraiser for the job, checking the appraiser’s qualifications and additional helpful tips.

“Personal-property appraisers aren’t licensed, but reputable professionals are affiliated with at least one of the three major appraisal organizations: the Appraisers Association of America, which focuses on personal property; the American Society of Appraisers, which includes specialists in real estate and other areas; and the International Society of Appraisers. 

Credentialed members of these three associations have been tested in their specialty area and the Uniform Standards of Professional Appraisal Practice (USPAP), abide by a Code of Ethics and have to requalify every five years.

To read the entire article click here. 

Protecting Your Valuables From A Disaster

 

Fire season is upon us in California and it’s time to be prepared.  As a personal property appraiser, I’d like to offer the following tips on protecting your valuable possessions prior to a disaster:

  • Photograph and inventory the contents of your home.  You can do it yourself or hire a professional home inventory company.
  • Check with your insurer to see what your policy covers, whether you have an Actual Cash Value or Replacement Value policy and what might need to be appraised.  Many items are not covered on standard insurance policies, such as breakage and earthquake damage.  You may need to purchase an extra policy for valuable articles.
  • Antiques, collections, art and other high value personal property should be appraised for replacement value.
  • Select an independent appraiser from a major appraisal society such as the International Society of Appraisers, who has been designated and tested.
  • Keep one copy of the appraisal in a separate location from the home, e.g. safety deposit box, insurance company, relative, on-line storage.
  • Have the appraisal updated approximately every five (5) years.
  • It’s much better to have your items documented in advance, than to try to deal with a loss claim after the fact.

Helpful Articles:

Will Your Homeowners Insurance Cover You If Disaster Hits? , Sandra Block, USA Today

Antique Insurance Coverage: What Antique Collectors Need to Know to SafeGuard Their Treasures, Insurance Information Institute

Is Your Home Fire Safe?, Insurance Information Network of California

Appraisers and Licensing

You might be surprised to hear that there are no Federal or state licenses for personal property appraisers in the United States.   When it comes to placing a value on your antiques, art and household contents, anybody can say they are a appraiser.   If a personal property appraiser claims to be licensed, it is for some other aspect of their business, e.g. auctioneering, real property appraising, private investigation or even a city business license.

How are personal property appraisers credentialed and what standards do they follow?

Appraisers are credentialed by their professional appraisal associations.  The three largest associations with personal property appraisers are the International Society of Appraisers (ISA), the American Society of Appraisers (ASA) and the Appraisers Association of America (AAA).  In addition to testing, education and demonstration of appraisal experience, designated members must requalify every 5 years.  All members are bound by a Code of Ethics.

The Uniform Standards of Professional Appraisal Practice (USPAP) is a set of guidelines published by The Appraisal Standards Board at The Appraisal Foundation.  It is the source of generally accepted standards and ethics for appraisers in the United States.  Appraisers must  take USPAP courses and keep current with the updates every 2 years.  In addition, the Appraisers Qualifications Board has developed voluntary minimum qualifications for personal property appraisers.

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.
What should you do to make sure you are getting a qualified and ethical appraiser?
  • Choose an appraiser from a major appraisal society and check to see if they are current.  Certified and Accredited are the highest levels of designation.
  • Ask them about their experience, areas of designation and expertise.
  • The appraiser should provide a 3rd-party independent opinion of value, and not have a potential conflict of interest.
  • Choose an appraiser who is USPAP compliant and IRS qualified.

Perhaps personal property appraisers will be regulated and licensed at some future date.  In the meantime, the user of appraisal services should carefully consider their selection.