When Do You Need an Appraisal for Charitable Tax Deductions?
The end of the year is a popular time for taxpayers to increase their charitable giving. Yet, one key requirement to claim larger donations on a tax return is securing a qualified appraisal.
There are a few important qualifications to note when seeking an appraisal, as well as some exceptions to the rule.
When Do You Need an Appraisal for Charitable Contribution Tax Deductions?
In the context of charitable contributions, an appraisal becomes necessary when a taxpayer wishes to deduct the fair market value of non-cash items: such as real estate, artwork, or valuable collectibles, on their income tax return.
Threshold for Appraisal
The need for an appraisal arises when the donated item, or group of similar items, exceeds $5,000 in value. In such cases, the taxpayer must obtain a qualified appraisal from a qualified appraiser, as defined by the IRS.
Taxpayers must include a copy of the appraisal summary to their tax return for the IRS to allow the deduction. If the value of the donation exceeds $500,000, then the full appraisal must be included with the tax return.
What is a Qualified Appraisal?
A qualified appraisal is one that is prepared by a qualified appraiser (defined below). The appraisal must be prepared no earlier than 60 days before the date of the donation, and a copy of the appraisal must be furnished to the taxpayer by the due date of their return. Separate qualified appraisals are necessary for each non-cash donation, unless that item is part of a group of similar items.
Who is a Qualified Appraiser?
A qualified appraiser is an individual with the necessary expertise and knowledge to evaluate the specific type of property being donated. The simplest way to determine if an expert meets the IRS definition of a qualified appraiser is to see if they belong to one of the many professional appraiser organizations. These include The American Society of Appraisers, the International Society of Appraisers, the Appraisers Association of America, and more.
Evolved’s tax experts work alongside qualified appraisers to review applicable charitable contributions. Contact our team to discuss options for your 2024 tax return.
Exceptions to Appraisal Requirements:
Taxpayers who wish to donate the following items are exempt from having to obtain an appraisal.
- Publicly traded securities
- Non publicly traded securities of $10,000 or less
- A vehicle for which the deduction is limited to the gross proceeds from the sale
- Business inventory, or
- Intellectual property
While charitable giving is encouraged despite the added tax benefits, it is crucial for donors to be aware of the IRS regulations surrounding the need for appraisals when claiming deductions on their tax returns. Taxpayers can ensure their charitable efforts align with tax compliance requirements by following these guidelines and obtaining a qualified appraisal when necessary, while making a positive impact of the causes they support.
Evolved is a tax compliance and advisory firm with offices in New York City and Philadelphia, and clients nationally throughout the US. We provide tax provision, private equity and venture capital services alongside advisory for high net-worth tax and family office tax.