Ten years ago, the Internal Revenue Service proposed regulations that would define how to value (and prove the actual value) of non-cash donations of $5,000 and over to charity. The regulations involved things like artwork, jewelry, antiques and other possessions whose value is often in the eye of the beholder.
Now, a decade later, the IRS has issued its final rules, which apply to all contributions made on or after January 1, 2019. Here is an overview of the new requirements:
- You will need a qualified appraiser to provide you with a qualified appraisal document of the value of the gift you’re making to charity. Now, the qualified appraiser is defined as somebody who has completed professional or college-level coursework in evaluating the type of property you are donating and has two or more years of experience in valuing that type of property. This person should also have received a “recognized appraiser designation” awarded by a professional organization. Your uncle Joe, who has a pretty good eye for the value of jewelry, will no longer be able to give the IRS an acceptable appraisal.
- The appraisal document should describe the item to be donated in layperson’s terms, estimate the fair market value, and provide an effective date of the valuation. There should also be a discussion of any terms of agreement or understanding of how the item will be used; that is, if it is to be displayed (as in a museum) or sold.
- The report must be signed and dated by the qualified appraiser no earlier than 60 days before the date of the contribution.
- The IRS requires a separate appraisal report for each item of property donated, if they are not similar.
- The regulations specify that the item must be appraised before the due date of the donor’s tax return in which the charitable deduction is claimed.
On a positive note, the IRS has ended a particularly expensive practice that carries with it a conflict of interest: qualified appraisers can no longer base their fees on the appraised value of the property in question.
This article is intended for information purposes only. Please consult your accountant to determine how the rules may apply to you.