When you donate certain property to charity, you may need to obtain a qualified appraisal in order to claim a tax deduction.
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This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.
What are the IRS rules for taking the charitable contribution deduction?
When you donate to charity and want to take a tax deduction, the IRS wants to see proof that you donated to charity and that the items you donated were worth what you said they were.
The more you donate, the more proof you need and the more paperwork you have to do.
You almost always need to get a receipt. If you make noncash contributions over $500, you may also need to file Form 8283. Form 8283 asks you to provide a detailed description of what you donated and to who.
Depending on what you’re donating and its value, you may also need a qualified appraiser to sign Form 8283.
When is a qualified appraisal required?
You typically need a qualified appraisal when you donate property worth more than $5,000. Property can be a single item, such as a Rolex watch, or a group of similar items, such as a coin collection.
For example, if you sell a collection of trading cards for $6,000 but no individual card is worth more than $100, you will generally still need to get a qualified appraisal.
There are exceptions to when you need an appraisal.
- Cash donations (other than collectible bills and coins).
- Stocks, bonds, ETFs, mutual funds, and other publicly traded securities.
- Qualified vehicles if your donation is limited to the gross proceeds from its sale and the charity gives you a contemporaneous written acknowledgment.
- Certain intellectual property such as patents (falls under different rules for proving value).
- Inventory or property held primarily for sale to customers in the ordinary course of your trade or business.
Do you have to file the appraisal with your taxes?
In most cases, you don’t have to include a qualified appraisal with your tax return. You generally just need to have the appraisal done and have the appraiser sign off on your Form 8283.
However, you should always keep a copy of the appraisal for your records. The IRS may ask you to provide a copy if you get audited.
There are four situations where you generally need to attach a copy of your appraisal to your tax return:
- Donations of art valued at $20,000 or more. You may also need to keep a photograph for your records of individual items worth $20,000 or more.
- Donations of clothing not in good used condition valued at $500 or more.
- Easements on buildings in historic districts.
- Deductions of more than $500,000.
When do you get the appraisal?
You typically need to get an appraisal between 60 days before the date of your donation up until the due date of the tax return on which you first claim a deduction for the property. The due date includes extensions.
If you claim a donation on an amended return, you must obtain the donation by the date you file the amended return.
When you first claim a deduction means that if you make a donation in 2022 but go over the charitable donation deduction limit and carry part of the donation forward into 2023, you need the appraisal by the due date of your 2022 tax return not 2023.
Who performs a qualified appraisal?
It should come as no surprise that a qualified appraisal to claim a charitable contribution deduction has to be done by a qualified appraiser.
A qualified appraiser means someone who:
- Holds a recognized appraiser designation (covering the type of property to be appraised) from a generally recognized appraiser organization, or
- Meets education and experience requirements valuing the type of property to be appraised.
Either way, the appraiser must regularly prepare appraisals for compensation.
The appraiser also must make a declaration that he or she is qualified to appraise the type of property being valued and that the appraisal is for income tax purposes.
There are many appraisers who routinely do IRS qualified appraisals and will be familiar with the requirements. However, you should talk to a tax accountant, not the appraiser, to make sure you’re meeting your tax filing requirements.
What happens if you don’t get a qualified appraisal?
If you don’t get a qualified appraisal when you’re required to, you will generally lose the deduction for your donation.
The IRS may allow your deduction if your failure was due to reasonable cause. This can include not knowing the appraisal requirements, but the IRS may consider things like if it’s your first time making a large donation.
The IRS may require you to provide proof of the item’s value, including by getting an appraisal, before allowing your deduction.
What happens if you carry your charitable contribution over?
In some cases, you may need to carry your charitable contribution over to a future year if you exceed the deduction limit in the year you made the donation.
You’ll generally need to attach Form 8283 and, if required, your qualified appraisal in each year you take the charitable deduction. So if you first claim the deduction in 2022 and carry part over into 2023, you will:
- Complete Form 8283 for 2022 and attach the qualified appraisal if applicable
- In 2023, attach a copy of your 2022 Form 8283. If you were required to attach the qualified appraisal in 2022, you’re also required to attach it in 2023.
- If you carry over the deduction again, continue to attach the original Form 8283 and appraisal to your tax return for subsequent years.