NAC

Some of us are fortunate enough to have lived long and well. Upon disposing or downsizing lifelong treasures, one has the possibility of selling them, giving them to children or heirs, or donating them to a worthwhile charity or museum. Although it is a fairly straightforward procedure to donate items to a reputable institution, one must consider the rules and regulations set up by the IRS if one seeks to claim a tax deduction in the following year.

One of the elements of a claimed deduction of property includes an appraisal of the value of that property on the donated date. Internal Revenue Procedure 66-49 contains guidelines for the information required on those appraisals and can be summarized as follows:

One may take a tax deduction of 100% of the fair market value of property that has a related use to a qualifying organization. The fair market value of an item is defined as "the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts" (IRS 1.170A-1(c)(2).

Two keys are the related use of the property (i.e., a painting given to an art museum) and the fair market value (as opposed to replacement cost, etc.) of the item. Although an appraiser may not be the judge of related use, they are the party responsible for determining fair market value. The IRS does not provide a list of appraisers who can perform this service, but they do list certain credentials necessary when looking for such a person. The "qualified" appraiser must do the appraisal a certain way, document and substantiate the values through comparable sales, and complete section B, part III of IRS form #8283, which is also filled out by the donor and the receiving organization.

An appraiser who holds themselves out as a qualified appraiser and performs such service may be subject to penalties and fines if found to be incorrect and whose aid to the taxpayer resulted in an underpayment of tax liability (an "over-valuing" of the property).

Any taxpayer may donate up to $500 of property without completing form 8283. For contributions up to $5000, form 8283 must be completed and sent in with a tax return. An appraisal is only necessary when the value is over $5,000. How does one know? Get an appraisal! (Kind of a catch-22.) The appraisal does not have to be forwarded to the IRS unless the deduction is over $20,000. It then requires an appraisal and certain types of photographs. Many send in all appraisals done, whether or not they are over $20,000, to insure the IRS that guidelines have been met and the values are correct and justified. If audited, taxpayers must show all information in their files, including the professional appraisals done for the claimed deduction.

When in doubt, get an appraisal. It will provide the correct value and direct you to the necessary information for your contribution. Just make sure, however, that the appraisal is done according to IRS guidelines. The appraiser should be aware of these regulations and have done these types of appraisals before. They are forbidden to appraise if "disqualified" by the IRS or have any interest in the property or taxpayer that may indicate any conflict. Professional training, credentials, and competency are a must.

A long held misconception theorized that estate appraisals were always low and charitable donation appraisals were always high. The law states, however, that the methodology, development, and valuation are exactly the same in both cases. The fair market value of an item is precisely the same amount whether or not the property is donated to a museum or part of an estate to be divided among heirs or sold to the public.

The law is both fair and firm, although not mine to defend. Donating your treasures for others to see, use, or enjoy is a very admirable and worthy cause. Make sure your effort is substantiated by appraisals that will uphold your endeavor and the scrutiny of the IRS.