Valuing Donated Property

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	Valuing Donated Property Personal Finance Advisor by Deloitte & Touche OnLine July 26, 1999

Big or little, your donation has a value for tax purposes.

Individuals donate a variety of items to charitable organizations -- items of relatively little value (for example, used clothing, old household goods), as well as items of substantial value (for example, paintings, antiques, gems, coins, rare books, classic cars, airplanes). A donation of appreciated property provides a current deduction, while avoiding capital gains taxes that would have been paid if the property had been sold.

Amount of Deduction: Donations of tangible personal property to a charitable organization for its use (for example, a painting donated to a museum) are deductible at fair market value (FMV). If the donated property will be immediately sold (for example, a charity auction), the deduction is limited to cost or FMV, whichever is less. Property donations of $5,000 or less do not require an appraisal. A donation of property (or group of similar properties) valued in excess of $5,000 must be appraised by a qualified appraiser. This includes automobiles -- the IRS has expressed concern about over-valuation of used cars, trucks, and other vehicles donated to charitable organizations. To be exempt from the appraisal requirements, donated securities must be publicly traded; therefore, securities subject to SEC Rule 144 or similar restrictions may require an appraisal.

Qualified Appraisal: Under IRS rules, a qualified appraisal must be made within 60 days of the contribution, or no later than the due date of the tax return that includes the deduction. Factors usually considered by an appraiser when determining the FMV of property include the recent cost or selling price, sales of comparable properties, replacement cost, opinions of experts, as well as the physical condition of the property.

Basic Information: The appraisal should include certain basic information:

A detailed description, including the physical condition and a photograph.
The FMV as of the contribution date or expected date of transfer.
The date (or expected date) of the contribution and the date the property is valued.
Agreements or contracts related to the use, sale, or disposition of the property.
The appraiser’s name, address, and taxpayer identification number (TIN).
Name, address, and TIN of the person (other than the donor) who hired the appraiser.
The appraiser’s qualifications.
A statement that the appraisal was prepared for income tax purposes.
The method of valuation used to determine FMV.

Appraiser’s Qualifications: A qualified appraiser is an individual who

Publicly claims to be a qualified appraiser or performs appraisals on a regular basis.
Has the ability to make appraisals based on qualifications described in the appraisal document.
Is not an excluded individual (for example, donor, donee, or other related party).
Knows that intentional overstatement of the value of property may cause the appraiser to be liable for penalties.

Fee Arrangements: As a general rule, the fee for the appraisal cannot be based on a percentage of the appraised value of the property. A charitable contribution deduction is not allowed for fees paid for an appraisal; however, appraisal fees may qualify for a miscellaneous itemized deduction (subject to the two percent of adjusted gross income limitation).

IRS Determinations: After reviewing an appraisal, the IRS may decide to make its own determination of value. An IRS determination of value will generally be made by either (1) an IRS appraiser/valuation specialist, (2) the Commissioners’ Art Advisory Panel (25 member group of art dealers), or (3) independent dealers or appraisers (if specialized experience/knowledge is required).

To verify the value of donated art, taxpayers may request a "Statement of Value" from the IRS for a donation valued at $50,000 or more. The request should be made before filing the tax return that includes the charitable deduction.

Penalties: If the FMV deduction for contributed property is overstated, penalties of 20 percent to 40 percent of the tax underpayment could apply. The 20 percent penalty will be assessed if (1) the underpayment is more than $5,000, and (2) the deduction amount was between 200 percent and 400 percent of the actual value of the donated property. The 40 percent penalty applies if the deduction amount was 400 percent or more of the actual value, and the tax underpayment is more than $5,000.

Reporting Requirements: If total noncash charitable donations exceed $500, IRS Form 8283, Noncash Charitable Contributions, must be filed. Required information includes the name and address of the charity, and the FMV of donated property. An appraisal summary (Section B of Form 8283) will be needed for each contribution of property (other than publicly traded securities) valued at more than $5,000. The donee should sign the appraisal summary to acknowledge receipt of the property. A signed appraisal must be included with the tax return for donations valued at $20,000 or more. If a charity sells donated property other than marketable securities within two years of receipt, it must report the sales price to the IRS.

These are some thoughts to consider about the valuation of donated property. Your Deloitte & Touche financial and tax advisor also can provide information and should be consulted before any action is taken.