Charitable Giving & Donation Appraisals
Q: Do donors have to submit an appraisal with their tax return if the Fair Market Value (FMV) of the non-cash charitable contribution is $20,000 or more? Or is that amount now $50,000?
A: Donors of property with FMV of $20,000 or more must submit an appraisal when filing their taxes if they claim a tax deduction. Until 2011, IRS had mandatory review by the Art Advisory Panel of all donated property appraised at $20,000 or higher. The mandatory review amount was increased to $50,000 in 2011.
For the suggested report format developed by the IRS Art Advisory Services for personal property appraised at or above $20,000, see Appraisal Item Format. To access this document, search the IRS website, www.irs.gov, under "Art Appraisal Services."
Q: The IRS regulations state that an appraisal must not be prepared more than 60 days prior to the effective date of donation. Are there any limitations on how long after the donation the appraisal can be prepared?
A: Yes. The appraisal must be prepared in time to be included with the donor's tax documents when filing his/her taxes. Unless the donor applies for an extension, the donor needs the appraisal completed in time to file on April 15 following the year of donation. (For example, if the donation occurred Oct. 1, 2011, the appraisal must be completed in time for the April 15, 2012 filing.)
NOTE: Clients typically, and incorrectly, assume that the report must be completed and in their hands by December 31, if that is the end of their tax year (annual rather than fiscal). But that is the date by which the gift must be made, not the date by which the report must be prepared. (See above.)
Q: Can a client who donates property to a charity auction take a Fair Market Value as their tax deduction?
A: Because of the requirements for related use of donated property, donors of property to charity auctions should not assume they can deduct the FMV of the donated property from their taxes. Instead, they can deduct either the cost basis or the FMV of the property, whichever is the lesser amount. Moreover, items donated to an organization that will use that property for fundraising at an auction do not meet the IRS tax criterion for a "related use."
The mission of the recipient institution is not to sell property; thus, the donation is NOT considered a "related use," even if the funds generated are used for a "related use." For more information on related use, see IRS Pub. 526. Note: Prices fetched for properties sold at charity auctions are not usually acceptable as evidence of comparable sales for appraisal assignments. Donors to non-profit organizations that sell the contributed property at a charity auction cannot use the selling price of the property at the charity auction as their deducted amount.
Additional Q&A commentary and explanations
IRS Requirements for Appraisals of Gifts and Donations
This Q & A was developed by PP Education Chairwoman Sandra Tropper, ASA, who leads ASA's team of POV and USPAP instructors. Anyone with additional questions may contact Sandie at firstname.lastname@example.org.