We don’t like to think about it, but there are several situations where our art, antiques and collectibles will be affected in a major way. Life’s events have a way of separating us from our possessions.
I would like add a fourth “D” to the list ….. disaster. Our beloved objects can be damaged or in the worst case scenario, destroyed. I discussed this subject in an earlier post titled “Protecting Your Valuables from a Disaster”.
Protection of your collection and planning for the future is essential. By having an inventory and professional appraisal, you can make informed decisions regarding insurance, donation, division or liquidation. At the end of every episode of the TV show “Strange Inheritance” they remind us “you can’t take it with you”.
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.
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.
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.
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.
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.
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.
Fair market value is generally the price at which someone can sell the property.
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.
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.
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.
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).
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.