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Lean on a pro for property appraisals

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in Small Business Tax

The IRS imposes strict substantiation rules for charitable deductions on 2016 returns. For instance, if you donated appreciated property last year, you must obtain a qualified appraisal for a deduction exceeding $5,000. Generally, you can claim a deduction equal to the property’s fair market value (FMV).

Strategy: Rely on an independent valuation professional. The IRS says you must use a “qualified appraiser” for these large donations. You can’t simply assign a value on your own.

The exact requirements are spelled out in IRS Notice 2006-96. Under this ruling, a qualified appraiser must:

  • Be certified by a professional organization or meet the education and experience requirements established by the Treasury Department
  • Be familiar with evaluating the type of property being donated
  • Regularly offer appraisals in return for a fee
  • Comply with any other requirements in the applicable tax regulations.

Appraisers must declare that they meet the requirements for being a qualified appraiser. In addition, they can’t be barred from practice before the IRS in the three years preceding the appraisal.

Furthermore, appraisers must declare that they understand they face civil penalties for inadequate appraisals. The IRS can also assess a tax penalty for excessive valuations that a qualified appraiser should have known would be used on a tax return.

Tip: These rules don’t apply to donations of publicly traded securities. Use the quoted market price to determine the FMV of the securities.

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