Some high-valued contributions to charity will require a qualified appraisal. The IRS requires documentation from the donor and charitable organizations to allow the donor to deduct these contributions.
Contributions of property (or a group of similar items) worth more than $5,000 requires:
- A “qualified appraisal” before your tax return is due,
- Attach an “appraisal summary” to the first tax return on which the deduction is claimed,
- Include other information with the return, and
- Maintain records.
A qualified appraisal is a complex and detailed document and must be prepared and signed by a qualified appraiser. An appraisal summary is a summary of a qualified appraisal made on Form 8283 and attached to the donor’s tax return.
The qualified appraisal isn’t typically submitted to the IRS. Instead, the appraisal summary, which is the Form 8283, is attached to the donor’s tax return. However, if the donated property is art worth $20,000 or more and any other property worth more than $500,000 then the qualified appraisal must be attached to the donor’s tax return. Inventory, publicly traded stock and intellectual property are exemptions to this rule. If the donated property’s appraised value is $50,000 or more, you can request a “Statement of Value” from the IRS to support the value of the property.
What happens if I don’t provide a qualified appraisal or the appraisal summary?
Failure to provide a qualified appraisal and attach an appraisal summary to the return disallows the deduction of the charitable contribution. Even if the contribution was valued correctly, the deduction will not be allowed if the proper documentation is not provided. However, if the failure to comply was due to a reasonable cause, the IRS will allow the deduction.
When isn’t a qualified appraisal necessary?
The following contributions do not necessitate a qualified appraisal:
- A car, boat or airplane when the deduction is limited to the charity’s gross sales proceeds,
- stock in trade, inventory or property held primarily for sale to customers in the ordinary course of business,
- publicly traded securities for which market quotations are “readily available,” and
- qualified intellectual property like a patent.
A “partially” completed appraisal summary is required for:
- Non-publicly traded stock for which the claimed deduction is greater than $5,000 and less than $10,000, and
- Publicly traded securities for which market quotations aren’t “readily available.”
What if I donate more than one gift during the year?
If you donate more than one item during the year (even to multiple charitable organizations) the values of all of the donated items in the same category type (such as painting, books, jewelry, stock that isn’t publicly traded, land, furniture, etc.) are added together when verifying that the $5,000 or $10,000 limitation isn’t exceeded.
Overall, the risk of disallowance of a charitable deduction decreases when you comply with the IRS’s requirements. Contact your relationship manager at Wegner CPAs for any further questions that you may have during your tax planning process.