Rules To Follow For an Accurate Tax-Deductible Donation Appraisal

Tax-deductible donation appraisal is a process whereby an appraiser evaluates a donated item or property to determine its fair market value. This is typically done for charitable donations of items such as artwork, jewelry, antiques, or other collectibles. The appraiser assigns a fair market value to the donation, which is then used to determine the amount of the deduction.

Why is this process important? Because it determines how much of a tax deduction the donor is eligible to receive from the Internal Revenue Service (IRS). Given the potential for donations to constitute tax deductions, it is essential that only qualified valuations are conducted. This ensures the cost of donations, and associated tax benefits, are not exaggerated.

While the IRS does not require a professional appraisal of donated items, it does provide guidelines for a proper appraisal process to be adhered to. Let’s understand in brief the process followed during an appraisal.

Tax-deductible Donation Appraisal–The Process

The first step that needs to be taken to carry out an accurate tax-deductible donation appraisal is to gather as much relevant information as possible about the item or items being donated. This should include photographs, descriptions, and any paperwork related to the item.

Next, the appraiser determines the fair market value of the donated item followed by the preparation of a written appraisal report. The final step involves submission of the appraisal report to the applicable tax authority. The tax body then uses the report to determine the amount of the tax-deductible donation.

Tax-deductible Donation Appraisal–The Rules

While the appraisal may seem like a short 4-step process, in order to ensure that the donation appraisal is in compliance with IRS regulations, there are specific rules that need to be followed. Why? Because only donations that have been appraised for their fair market value can be claimed by the donor as a tax deduction. And that is why it is important to ensure that the appraisals comply with IRS regulations to ensure the deduction is valid. Listed below are some important rules that you need to follow before you opt for a donation appraisal.

Use a Qualified Appraiser:

It is important to use only a qualified appraiser who is independent of the donor and the other party. The appraiser needs to be familiar with the type of item being donated. Possessing good knowledge about the IRS regulations is also a must. Not only should the appraiser be qualified and certified but also have adequate working experience and a good reputation in the industry.

Provide an Accurate Description of the Item Being Donated:

The appraiser needs to have all the details such as the exact make, model, age, and condition of the item being donated. It is essential that these details be accurate and genuine. This in turn will ensure that the appraisal is accurate and the donor will receive the correct tax deduction. Any inaccuracy in the description of the items can cause a negative effect on the tax deduction.

Obtain a Written Appraisal Report:

It is important that the appraisal be documented in a written report. Of the many things in the report, some essential points that it should include are the appraiser’s signature, the qualifications of the appraiser, the date of appraisal, and the fair market value of the item being donated. This report should be kept on file ready to be presented in case the IRS requests it.

Document the Donation:

The donor must keep a receipt of the donation and provide a written record of the donation to the appraiser at the time of appraisal. This is done by having the donor complete a written donation form that includes the donor’s name, address, and contact information.

The form should also include the description of the donated item, its estimated value, and the date of donation. This written record helps the appraiser to determine the fair market value of the donated item.

Include an Appraisal Fee:

And finally, the appraisal fees which are usually tax deductible should be included in the donation amount.

The Role IRS Plays

The IRS is responsible for reviewing and approving charitable donations. It is the responsibility of the IRS to ensure that the donor is not claiming an inflated value for tax purposes. The IRS also works to ensure that the donor does not use the donation to receive any personal benefit, such as a tax deduction or other financial gain.

Appraisily Can Help You

Donations are an important part of charitable giving, and it is important to make sure that the appraisal process is done correctly in order to maximize the benefits of the donation. To receive the correct tax deduction, donors can opt for an accurate appraisal of their donation and ensure that their donation appraisals are in compliance with IRS regulations.

If you are looking for experienced and qualified appraisers, reach out to the experts at Appraisily to receive prompt online appraisal services and valuable guidance.

Cited sources

https://www.thetaxadviser.com/issues/2016/apr/charitable-contributions-of-artwork-primer.html

https://www.bnymellonwealth.com/insights/how-to-make-tax-deductible-charitable-donations-of-artwork.html

https://www.nolo.com/legal-encyclopedia/when-are-appraisals-required-donations.html

https://www.mcguirewoods.com/client-resources/Alerts/2022/11/procedural-missteps-lead-loss-tax-deductions-charitable-gifts

https://www.irs.gov/publications/p561