On the Record: The Rules of Appraisals

Most donors know that if they want to make a contribution of property to a charitable organization, they must establish the value of the donated item in order to claim it as a deduction. And knowing what is necessary to support a claim might encourage a donor to actually make the donation.

This column is a brief review of the requirements governing donations of property, other than publicly traded securities, having a value in excess of $5,000.

For starters: When the value of donated property exceeds $5,000, the donor must obtain a “qualified appraisal” dated no earlier than 60 days before the date of the donation — and have it prepared, signed and dated by a qualified appraiser.

What is a qualified appraisal?
A qualified appraisal must describe the donated property and its physical condition, as well as the terms governing its use. It also must include the name, address and taxpayer identification number of the qualified appraiser and, if applicable, the name, address and taxpayer identification number of the company that employs or engages the appraiser.

What’s more, the qualified appraisal must include the appraiser’s qualifications, e.g., background, experience, education and membership in any professional appraisal associations. The appraisal also must state the date on which the property was appraised and that the appraisal itself was prepared expressly for income tax purposes.

Finally, the appraisal must indicate the fair market value of the property — on the date or expected date of the contribution — and the method and basis for how it was appraised.

Note: How the appraiser is compensated is a factor in determining whether the appraisal is a qualified appraisal. Briefly put, the appraised value of the donated property cannot be a factor in determining the fee received by the appraiser, nor can the amount of the deduction be a factor in determining the fee.