An appraisal is a process of determining the value of a property, asset, valuable item, antique, or collectible. It’s similar to getting a professional opinion on how much something is worth.
The IRS requires a qualified appraisal for certain types of property such as real estate, artwork, or gems and jewelry. This requirement exists to ensure that the reported value is accurate and fair.
What is A Qualified Appraisal?
A qualified appraisal is a comprehensive and objective assessment of a property’s value. It is typically conducted by an experienced and certified real estate appraiser. One who is knowledgeable about the local market and real estate trends and follows appropriate appraisal standards. A qualified appraisal is an important tool for lenders, home buyers, sellers, and investors when it comes to making decisions about a property’s current and future value.
Difference between a Qualified Appraisal and Comparative Market Analysis
A qualified appraisal is different from the common comparative market analysis (CMA), which is often used by real estate agents to estimate a property’s value. While a CMA is based on the sales prices of recently sold properties, a qualified appraisal takes into account a number of factors to determine the estimated market value of a property. Some of these factors include location, condition of the property, neighborhood features, and market conditions.
Role of Appraiser in a Qualified Appraisal
The appraiser starts by performing an on-site inspection of the property. During the inspection, the appraiser takes notes on the condition and features of the property, such as its size, age, amenities, and if any upgrades or improvements have been made in the recent past. The appraiser also researches local market trends and the sale prices of similar properties in that area.
Once the inspection is complete, the appraiser will use the information gathered to prepare a report that estimates the market value of the property. This appraisal report will include an explanation of the methodology used to arrive at the estimated value. It will also have a comparison of the subject property to similar properties recently sold. The report will also include a range of possible values as well as a confidence level in the accuracy of the appraisal.
5 Reasons Why the IRS Requires a Qualified Appraisal
Now that it is clear that a qualified appraisal is important for tax purposes and that it should be carried out only by a qualified appraiser, let’s try and find out why the Internal Revenue Service (IRS) needs a qualified appraisal to be carried out.
Here are 5 reasons why the IRS requires a qualified appraisal:
1. To Determine Fair Market Value:
The IRS requires a qualified appraisal to help determine the fair market value of an item or property. This is important for both taxpayers and the IRS. Why? Because it helps ensure that the taxpayer is correctly reporting the value of their assets and that the IRS is collecting the correct amount of taxes.
2. To Ensure Accuracy:
A qualified appraisal is done to ensure accuracy in the determination of the value of an asset or property. This exercise is done to ensure that the taxpayer is not under- or over-valuing their assets, which could lead to an inaccurate assessment of taxes due.
3. To Avoid Conflicts of Interest:
During the determination of the value of an asset or property, a qualified appraisal ensures potential conflicts of interest do not arise. And that is why it is essential that only a qualified appraiser be involved in the entire process. Because a qualified appraiser is independent of the taxpayer and the IRS, and is not influenced by either party.
4. To Establish Basis:
The IRS requires a qualified appraisal to help establish the basis of an asset or property. This helps to ensure that the taxpayer is reporting the correct amount of gain or loss for the asset or property and not cheating.
5. To Determine Charitable Contributions:
An IRS-qualified appraisal is essential for certain charitable contributions, such as art, antiques, and other items of value. This helps to ensure that the taxpayer is not overstating the value of the contribution. An incorrect value could lead to an inaccurate tax assessment.
By requiring a qualified appraisal for certain transactions, the IRS is able to ensure accuracy in the determination of the value of an asset or property and to avoid any potential conflicts of interest. This helps to protect both taxpayers and the IRS, and ensures that the correct amount of taxes is being paid.
Why an Experienced Appraiser?
An experienced appraiser is essential for a qualified appraisal. Why? Because they have the necessary knowledge and skills to accurately determine the value of the property. They are experts who are familiar with the specific appraisal techniques and standards that need to be applied. These qualified and trained professionals know which factors to take into account that may affect the property’s value.
In addition, an experienced appraiser can provide a detailed report that meets the requirements of an IRS-qualified appraisal. This is important for tax purposes. Without an experienced appraiser, there is a risk that the appraisal will be inaccurate or incomplete. This can lead to issues with the IRS and potentially result in penalties or additional taxes owed. If you are looking for a professional appraiser get in touch with experts at Appraisily.