Rules and Regulations as to the Use of Personal Property Appraisals When Taking Deductions for Non-Cash Charitable Donations
Admittedly, it’s not an exciting topic, but no organization dealing with personal property appraisals should be silent as to the IRS rules concerning when personal property appraisals must be obtained and/or presented with your annual 1040 return when claiming non-cash charitable donations as a deduction against income.
When you donate tangible property other than cash or bonds to a qualified charitable organization, the IRS often requires you to obtain and sometimes attach a personal property appraisal prepared by a professional “qualified appraiser”. (However, for reasons why a personal property appraisal, once procured, should always be attached to form 8283 when making non-cash donations, please consult our article, IRS “Red Flags” and Non-Cash Charitable Donations: Why You Need an Appraisal.) Generally speaking, the rules regarding the use of personal property appraisals differ depending upon the value of your non-cash charitable donation.
Non-Cash Donations of $500 or More: First, if you make non-cash charitable donations in the aggregate amount of $500 or more, the IRS requires that you submit with your return a form 8283 that details the nature of your non-cash charitable contributions.
Non-Cash Donations of $5,000 or Less: As a rule, the IRS does not require that you obtain a personal property appraisal for non-cash charitable contributions of an item valued at less than $5,000. However, at Arcadia Appraisals, we strongly believe that any significant charitable non-cash donation of several thousand dollars should be supported by an appraisal to deflect the chances of triggering an IRS audit. (See our article herein, IRS “Red Flags” and Non-Cash Charitable Donations: Why You Need an Appraisal.)A significant exception to the above-stated rule comes into play when the taxpayer seeks to deduct the value of his non-cash donation consisting of clothing or household goods that are not in good condition or better. If you claim the value of any single such item donated to be greater than $500.00, you must obtain a personal property appraisal. This exception usually applies to expensive gowns and dresses, fur
coats and non-antique furniture.
Non-Cash Donations Greater than $5,000: Generally, if the claimed deduction for an item or “group of similar items” of donated property is more than $5,000, then you must obtain a qualified personal property appraisal from a “qualified appraiser” and attach Section B of Form 8283 to your personal 1040 return. (There are exceptions to this rule generally dealing with securities, but such donations are beyond the scope of this article). Although the IRS does not require that the taxpayer attach the qualified appraisal to the return unless the value of the donation exceeds $500,000, we at Arcadia Appraisals believe that whenever a personal property appraisal is procured, it should be appended to your return as a matter of course.
An additional word of explanation is needed in order to clarify what the IRS means by a “group of similar items” whose value exceeds $5,000. The phrase “similar items” property means multiple items of property of the same generic category or type even if distributed among multiple donees. For example, suppose you have a coin collection, and you divide and donate it to three separate qualified charities, the value of the first, second, and third set of coins being donated, having values of $900, $2,100 and $2,400, respectively. In that case, because the non-cash donations consist of a group of similar items, the total amount of the donation exceeds $5,000, and the taxpayer must obtain a qualified appraiser and must fill out Section B as to all three charities receiving the coins.
Donations of Art of $20,000 or More: As was stated earlier, the IRS does not, as a general rule, require the taxpayer to attach a qualified appraisal to his or her return for non-cash donations of less than $500,000. However, if your donation consists of “art”, the government requires you to submit a qualified appraisal to your return. The IRS specifically states that this rule is particularly related to “paintings” but it is unclear as to what it regards as “art” in general. We strongly advise our clients to attach our appraisals to their forms 8283 no matter the size or nature of the non-cash donation.
Non-Cash Donations Exceeding $500,000: Unless you are donating publicly-traded stock, intellectual property or inventory, you are required to obtain and attach to your form 8283 of your return a qualified appraisal for non-cash donations of property exceeding $500,000. Failure to attach a qualified appraisal to your return such large non-cash donations may result in the IRS declining to accept your donation as a legitimate deduction against income.