Charitable donations can reduce your taxable income. In some cases, you may need an appraisal to support the value of a donation you have made.
Within the annual limit set by the Internal Revenue Service (IRS), you are oftentimes able to deduct the full amount of your itemized charitable donation for 2022. When it comes to high-value donations, you may need to prove the fair market value (FMV) of your donation. In order to adequately prove the value of donated property with a value in excess of $5,000, you will need a qualified appraisal.
There are some items for which a qualified appraisal is not required, including:
- Publicly traded securities on which value assessment is easily obtained
- Property such as vehicles like a car or boat whereby value is reflected in charitable gross sales proceeds
- Intellectual property and business inventory
The reason for a qualified appraisal is to reduce or eliminate the possibility of tax fraud on an annual return. The IRS notes criteria for a qualified appraisal, including the following:
- The appraisal is created, signed, and dated by a qualified appraiser. According to the IRS, a qualified appraiser is one who possesses “verifiable education and experience” with the property or material on which an appraisal is sought. Such an appraiser will have accepted credentials for the industry, sufficient coursework, and routinely provides paid appraisals on the property at issue. People who cannot provide qualified appraisals include the parties who are giving and receiving the property, or persons related to parties or the transaction.
- A qualified appraisal must be obtained prior to the due date of the tax return on which the donated property will be claimed.
- With some exceptions, the fee for the qualified appraisal cannot be based on the value of the property claimed.
- The qualified appraisal must include a specific description of the property and its condition, the date and terms of the contribution, the name and identifying information of the taxpayer and specifics of the appraisal.
If making a high-dollar donation, a qualified appraisal is important. Tax fraud around charitable donations is common and IRS agents pay attention to appraisals that are not supported by or consistent with the facts of the donation and its type. Taxpayers who overreport the value of their deduction are assessed fines of between 20 and 40 percent of the amount of underpaid tax.
Charitable donations are important tax and philanthropic tools. If you have questions about donations for the upcoming tax year, speak with an experienced tax attorney.
Speak with our tax group if contacted for an IRS audit or compliance question
The skilled tax lawyers at Robert J. Fedor, Esq., LLC deliver strong legal services for those facing tax litigation, payroll tax issues, offshore tax, or compliance questions. We work with local and international clients from offices in Cleveland and Chicago. Call 800-579-0997 or contact us online today.
