Need for a Professional Appraisal
If you own assets (art, property, jewelry) that are subject to taxation, it’s important to know when you need to obtain a professional appraisal for tax purposes. An appraisal is a process that determines the value of an asset.
The Internal Revenue Service (IRS) can ask for a professional appraisal for several different reasons. To understand when a professional appraisal is necessary this article will explore five different situations where a professional appraisal may be required for tax purposes.
Estate Tax Valuation:
Upon the passing away of an individual, their estate is subject to estate tax. This tax is levied on the transfer of the property of a deceased person. Since the value of the estate must be determined for estate tax purposes, the need for a professional appraisal arises.
The appraisal may be necessary to determine the fair market value of the assets included in the estate. This includes real estate, stocks, bonds, art, jewelry, and other assets.
As per the rules laid down by the IRS, the appraisal must be done by a qualified appraiser. The appraisal report must be submitted to the IRS along with the estate tax return. The value of the assets will determine the amount of estate tax that must be paid. That is why it’s important to obtain an accurate appraisal to avoid overpaying or underpaying the tax.
Gift Tax Valuation:
When an individual gives a gift to someone, the gift may be subject to gift tax. This is a tax that comes into effect on the transfer of property from one person to another without receiving something of equal value in return. The value of the gift must be determined for gift tax purposes, and a professional appraisal may be necessary to determine the fair market value of the gift.
Again it is essential that the appraisal be done by a qualified appraiser, and the report be submitted to the IRS along with the gift tax return. The value of the gift determines the amount of gift tax that must be paid.
Charitable Contributions:
Donating a property to a charity by an individual may make them eligible to a tax deduction for the value of the donation. It is through a professional appraisal that the value of the donated property will be determined for tax purposes. The appraisal will also determine the fair market value of the property.
For the appraisal to be valid it must be performed by a qualified appraiser. The report must be submitted to the IRS along with the tax return that claims the charitable contribution deduction. Since the value of the donated property determines the amount of the deduction, it’s important to obtain an accurate appraisal to ensure that the deduction is legitimate and appropriate.
Corporate Transactions:
When a corporation is involved in a transaction, such as a merger, acquisition, or liquidation, the value of the corporation’s assets needs to be determined for tax to be deducted. For doing this a professional appraisal may be necessary. This appraisal will determine the fair market value of the assets involved in the transaction.
The appraisal report and the tax return details will be submitted by a qualified appraiser to the IRS. The value of the assets determines the amount of tax that must be paid or the amount of gain or loss that must be recognized. To ensure that the tax consequences of the transaction are properly reported it’s important to obtain an accurate appraisal.
Conservation Easements:
When an individual donates a conservation easement to a qualified organization, they may be able to take a tax deduction for the value of the easement. The value of the easement must be determined for tax purposes, and a professional appraisal may be necessary to determine the fair market value of the easement. To ensure that the deduction is legitimate and appropriate it is essential an accurate appraisal is carried out. The IRS requires a qualified appraiser to perform the appraisal and submit the report along with details of tax returns.
Reach Out To Professionals in Appraisily
While the cost of obtaining a professional appraisal may seem significant, it can save you money in the long run. A professional appraisal carried out by a qualified appraiser will not only prevent you from overpayment or underpayment of taxes but also help you avoid penalties and interest on unpaid taxes.
That is why it’s always best to consult professionals who are experienced in what they do. For guidance, you can reach out to expert appraisers at Appraisily. They will help you decide when you need a professional appraisal for tax purposes and how to obtain one that meets IRS requirements.
Cited Sources
https://www.appraisaleconomics.com/when-business-appraisals-are-necessary-for-tax-purposes/
