Seeking a Deduction for a Big Non-Cash Charitable Contribution This Year? Find a Good Appraiser Before Doing So.
Few tax deductions are as widely used and commonly known as those for charitable gifts. If you made a generous contribution to a qualifying organization last year, you can avail yourself of the tax code’s benefits and potentially shave significant amounts off your obligations.
The value of your deduction is directly correlated to the value of your donation. For cash gifts, it isn’t particularly hard to calculate that amount or demonstrate the value of your contribution to the IRS’ satisfaction when filing your return. But if your generosity manifested in tangible, non-cash property and you claim a deduction of more than $5,000 based on your gift’s supposed fair market value, you better be ready to back up your claim. In most cases, that means obtaining and submitting a qualified appraisal to the IRS. If you fail to do so, your good deed will still benefit the recipient, but it may not be worth anything to you when Tax Day comes.
When Do You Need an Appraisal?
If you seek a deduction for a non-cash contribution of more than $500 or for a group of similar items for which you claim a total deduction of over $500, you must complete and file Form 8283 as part of your return. The information and documentation you must provide with the form depend on the value of the donated property and the corresponding amount of the claimed deduction. With a few exceptions, if your claimed deduction for a donated item or group of similar items is more than $5,000, you must obtain a qualified appraisal signed and dated by a qualified appraiser. This requirement applies to most donations of artwork or collectibles valued at $5,000 or more, including:
- Rare manuscripts.
- Historical or sports memorabilia and other similar objects.
You will also need to include with your return a qualified appraisal of any single item of clothing or any household item that is not in good used condition or better and for which you deduct more than $500.
If you need to obtain a qualified appraisal, you must receive it before the due date, including extensions, of the return on which you first claim a charitable contribution deduction for the donated property. If you first claim the deduction on an amended return, you must receive the qualified appraisal before filing the amended return.
While you will still need to complete Form 8283 for the following claimed non-cash contributions of $5,000 or more, you need not obtain or submit an appraisal for:
- Non-publicly traded stock of $10,000 or less.
- A vehicle (including a car, boat, or airplane) for which you obtained a contemporaneous written acknowledgment for which your deduction is limited to the gross proceeds from its sale.
- Qualified intellectual property, such as a patent.
- Certain publicly traded securities for which market quotations are readily available.
- Inventory and other property donated by a corporation that are “qualified contributions” for the care of the ill, the needy, or infants.
- Stock in trade, inventory, or property held primarily for sale to customers in the ordinary course of your trade or business.
What Is a “Qualifying Appraisal” Sufficient to Support Your Claimed Deduction?
In Publication 561, the IRS explains what it considers a “qualified appraisal” for assessing the value of non-cash charitable gifts. This includes a lengthy and detailed list of the information that the appraisal must include, as well as needed qualifications and applicable exclusions of an agency-approved “qualified appraiser.”
The IRS makes clear that even when a qualified appraisal is obtained, it “does not accept appraisals without question. Nor does the Service recognize any particular appraiser or organization of appraisers.” The weight given to an appraisal depends on the report’s completeness, the appraiser’s qualifications, and the appraiser’s demonstrated knowledge of the donated property. In some cases, the IRS may make its own determination of fair market value if it doubts the reliability of the claimed valuation.
As with any aspect of the tax code, the rules about the substantiation required for deductions based on non-cash charitable contributions contain myriad nuances beyond the scope of this post. If you want to ensure that your generosity over the past year is appropriately recognized by the IRS when processing your return, you should meet with one of Maddin Hauser’s experienced tax lawyers who can review your contributions and determine what documentation you need to obtain the maximum deduction available.