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Imagine this: you just donated a family heirloom, an antique piano that’s been in your home for decades, to a local music school in your locality. You’re feeling happy and fulfilled—and then, tax season rolls around. You want to claim a deduction on your charitable donation; however, the IRS rejects your request.
Now you may be wondering why. You’re likely unaware of the IRS’s specific requirements that are essential to substantiate your deduction for non-cash charitable contributions. This is where appraisal for charitable donations becomes more than just paperwork, but your assurance of compliance and good faith, which can help you claim tax deductions rightfully.
Just like you, many people donate artwork, gift equipment, or give away their inherited real estate to support a cause without realizing the need to document their donations professionally. However, whether you’re donating out of goodwill or to save taxes, understanding the nuances of charitable contributions and how they can also help you save taxes will allow you to make informed decisions.
Let’s walk through everything you need to know about getting an appraisal for charitable donations and how to do it right to avoid any last-minute hassles.
Before diving into appraisals, you must know what types of charity donations qualify for tax deductions as per the Internal Revenue Service (IRS).
Generally, a charity donation is a gift of money or property to any tax-exempt organization. Now, making donations to not all types of non-profit and charitable organizations makes you eligible for tax exemptions. As per the IRS, only the organizations classified under section 501(c)(3) of the Internal Revenue Code are eligible to receive tax-deductible contributions.
These organizations include churches, hospitals, schools, scientific research organizations, and public charities. Making charitable contributions either in cash or non-cash assets can help you qualify.
Furthermore, another key point to keep in mind here is that you can’t receive significant personal benefits from your contributions. For instance, if you donated a valuable painting to a museum and, in return, they hosted a private gala exclusively for you and your friends, then the portion of the amount spent on organizing the gala can’t be considered for deductions.
An online appraisal is the professional assessment of any item, done to estimate its fair market value or condition. Whether it’s real estate, artwork, antiques, vehicles, or any other valuable assets, an appraisal can help you understand what your item is genuinely worth in the current market.
Similarly, charitable donation appraisal can help you determine the true value of your donated item so that you can claim deductions. It’s a formal and independent valuation of non-cash property or an asset you donated by a professional appraiser.
The IRS makes it mandatory for you to get a charity donation appraisal if the value of your non-cash charity donation exceeds $5000. When filing for a deduction, you’ll be required to furnish the documented proof of the assets’ value, typically in the form of a qualified appraisal report. Need a fast, IRS-compliant appraisal? Start your online appraisal with us today.
There are many ways you can show your generosity beyond simple cash-based contributions. Understanding the diverse ways you can purposefully give back to society and how they are typically appraised can help you maximize your impact and potential tax benefits.
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Assets like art, antiques, jewelry, collectibles, or even specialized equipment fall into this category. To get such assets appraised, you need to approach a specialized appraiser with expertise in that particular asset appraisal.
Donating stocks and securities can be a highly tax-efficient way for you to make a charitable donation. If you’ve held stocks that have significantly increased in value, donating them can help you avoid capital gains tax on the appreciation while receiving a deduction for the fair market value of the shares.
Vehicles are a valuable charitable contribution that also requires a charitable donation appraisal. The vehicle appraisal must take into account the vehicle’s make, model, year, condition, mileage, and any special features.
Donating partial or full interest in a business, like partnership interest or shares, is a more complex type of charitable contribution. Therefore, business interest appraisals require a specialized business valuation expert who can determine the fair market value.
You may wonder, “Do I really need an appraisal for my charity donation?” The answer here is a resounding yes, especially if you’re donating non-cash assets. Your charitable donation appraisal report can help you avail yourself of the following benefits:
One of the primary reasons why individuals seek an online appraisal for their charitable donations is to get tax deductions. The IRS requires you to have a qualified appraisal report for non-cash charity contributions worth more than $5000. Without this, you risk not getting any deductions.
A professional charitable donation appraisal can help you accurately estimate your asset valuation as per the IRS requirements and avoid any penalties or audits.
For high-value assets, the IRS requires clear documentation of the fair market value. Thus, a professional appraisal report is needed. It’s also crucial to complete the IRS Form 8283 appraisal for noncash charitable contributions, which is required for donations exceeding $500.
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Step 1: Confirm Eligibility
The first thing to confirm is whether your gift meets IRS standards for a deductible charitable contribution and whether you’re donating to a tax-exempt entity or not. Using the IRS’s Tax Exempt Organization Search Tool, you can verify the eligibility of your organization.
Further, cash donations don’t require any appraisal, but non-cash gifts over $5000 do. So, to determine their fair market value and to easily substantiate your deduction under IRS Publication 526 and Publication 561, get a professional appraisal done.
Step 2: Choose a Qualified Appraiser
As per the IRS, the qualified appraisers are the ones who meet all the criteria mentioned in IRS Notice 2006-96. Let’s explore what every qualified appraiser should have:
The appraisal must also meet all the generally accepted appraisal standards outlined by USPAP.
Step 3: Schedule the Appraisal
The timing of your appraisal is crucial for the IRS to accept your deduction. According to Treasury Regulation, your charitable donation appraisal can’t be more than 60 days old before the date of the contribution and must be received by the due date of the return or when you’re filing to get a deduction (including extensions).
For instance, if you’re planning to donate a painting on December 1, your appraisal must be dated no earlier than October 2 of the same year, and you must use this appraisal report for return filing by April 15.
Step 4: Receive the Written Report
A professional charity donation appraisal report is a legal document that must contain all the required components mentioned in IRS Form 8283, section B, and adhere to USPAP standards. Plus, you must have a written report to attach to your return.
Step 5: Complete IRS Form 8283
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Completing Form 8283 makes your charitable contribution official in the eyes of the IRS. If your non-cash donation exceeds $500, you must complete this form.
For donations exceeding $5000, completing Section B is crucial. Along with this, you must:
Sometimes, timing can be tricky, and every year, the IRS rejects multiple deduction claims because of this. So, make sure your online appraisal is done no earlier than 60 days before the date of contribution and no later than the due date.
Overstating the value of your donation can lead to hefty penalties. Therefore, work with a reputable appraiser and ensure accuracy.
Knowing the amount of deduction you can receive in a year based on the type of asset donated, the type of charity, and your Adjusted Gross Income (AGI) is also crucial. For cash contributions, you can deduct up to 60% of your AGI, and for non-cash contributions, the limit is 30% of AGI.
Donations of fine art have their own thresholds, separate from general personal property.
Q1: What is the deadline for getting an appraisal?
Your appraisal report must not be dated 60 days before the donation date and the submission of your tax return (including extensions).
Q2: Who qualifies as a “qualified appraiser”?
Any appraisal company or an individual holding a recognized professional designation from a qualified appraisal organization, or who has education and experience in valuing the specific asset class, is considered a qualified appraiser.
Q3: What if I underestimate or overestimate the value?
Underestimating means leaving the money on the table, and overestimating can lead to IRS penalties.
Whether you’re donating a beloved classic car to a veterans’ group or gifting your business’s outdated but valuable equipment to a non-profit school, giving is powerful. But to make your charitable donation truly count on your taxes, you must get it appraised accurately. Ready to make your giving go further? Get in touch for a custom appraisal quote or to speak with a qualified valuation expert today.
