If you make substantial non-cash gifts to charity, it’s important to familiarize yourself with new requirements for qualified appraisals. A qualified appraisal must accompany non-cash gifts over $5,000 (with certain exceptions), including groups of similar items whose total value exceeds $5,000 (even if donated to separate recipients).
Recently, the IRS finalized 10-year-old proposed regulations regarding substantiation and reporting requirements for charitable deductions. For the most part, the final regs are similar to the proposed regs, but there are some significant changes to the rules on qualifications of appraisers and the content of their appraisals, effective January 1, 2019.
Strict compliance with these rules is critical. Otherwise, you may lose valuable tax deductions, even if a donation is otherwise legitimate and the reported value is accurate.
To substantiate non-cash charitable contributions over $5,000 ($10,000 for closely held stock), you must, subject to certain exceptions noted below:
• Obtain a contemporaneous written acknowledgment (CWA) from the recipient stating 1) the amount of your contribution, and 2) a description and good-faith estimate of the value of any goods or services provided in consideration of your contribution,
• Obtain a qualified appraisal of the property by a qualified appraiser,
• File Form 8283 (Section B) — signed by you, the recipient and the appraiser — with your federal income tax return on which the deduction is claimed, and
• For contributions over $500,000, attach a copy of the appraisal to your return.
You must obtain the CWA and appraisal by the extended due date of your tax return or, if earlier, the date you file your return. No appraisal is required for certain types of property, including publicly traded stock, vehicles (if your deduction is limited to the gross sale proceeds), certain inventory and intellectual property.
What’s a Qualified Appraisal?
To qualify, an appraisal must be prepared by a qualified appraiser in accordance with generally accepted appraisal standards. Some commentators urged the IRS to require strict compliance with the Uniform Standards of Professional Appraisal Practice (USPAP), developed by the Appraisal Standards Board of the Appraisal Foundation. Fortunately, the final regs define generally accepted appraisal standards to mean the “substance and principles” of USPAP, giving appraisers the flexibility to follow appraisal standards developed by other organizations.
The final regs also include a detailed list of information an appraisal must contain. The appraisal must be signed and dated by the appraiser no earlier than 60 days before the property is contributed and no later than the extended due date of your return.
Who’s a Qualified Appraiser?
A qualified appraiser is someone with “verifiable education and experience in valuing the type of property for which the appraisal is performed.” (See “People who aren’t qualified appraisers.”) The education and experience requirement may be satisfied by either:
• Successfully completing certain professional or college-level coursework and obtaining two or more years of experience in valuing the type of property being appraised, or
• Earning a recognized appraiser designation from a generally recognized professional appraiser organization.
Coursework must be obtained from an educational institution, a generally recognized professional trade or appraiser organization, or a satisfactory employer educational program.
A qualified appraiser need not have education and experience in valuing property identical to the property being appraised. According to the final regs, “type of property” means “the category of property customary in the appraisal field for an appraiser to value.” So, for example, if it’s customary for professional antique appraisers to appraise antique widgets, an appraiser with two years of experience in valuing antiques generally would be qualified to appraise an antique widget.
Suppose, however, that it’s not customary for professional antique appraisers to value new widgets. An appraiser with experience in valuing antiques generally but no experience in appraising new widgets wouldn’t be considered qualified to conduct a valuation of this type of property.
Vet your Appraisers
If you donate property to a charity that requires a qualified appraisal, do your homework to be sure your appraiser has the necessary credentials and experience. An appraisal by a non-qualified appraiser, no matter how thorough and accurate, will jeopardize the deductibility of your gift.
People Who Aren’t Qualified Appraisers
The final regulations specify that the following individuals are not qualified appraisers, regardless of their education and experience:
1. You, as the donor of the property,
2. The recipient of the property,
3. A party to the transaction in which you acquired the property (the person who sold or gave it to you, for example), unless you contribute the property within two months after you acquire it and its appraised value doesn’t exceed its purchase price,
4. Certain relatives and employees of the individuals listed above (and the spouses of such relatives and employees),
5. An independent contractor who regularly performs appraisals for any of the individuals listed in (1), (2) and (3) above and doesn’t perform a majority of his or her appraisals for others,
6. One who has been suspended from practice before the IRS at any time during the previous three years, or
7. One who receives a prohibited appraisal fee — that is, a fee based to any extent on the property’s appraised value, including one that depends on the value allowed by the IRS after an examination.