Estate Planning and Tax Lawyer Blog

One of the most popular charitable contributions here in Florida is to donate your car or boat to a charity and get a nice charitable deduction.  Prior to 2006, most folks would just use the blue book to determine the value of the contribution.  However, the Pension Protection Act of 2006 made significant changes to the definition of a “qualified appraiser” and “qualified appraisal” when it comes to donations of any non-cash contribution deduction that exceeds $5,000.  The IRS, through tax regualtions and recent case law, now mandates the donor to 1) obtain a qualified appraisal for the contributed property; 2) attach a fully completed appraisal summary (form 8283) to the income tax return on which the deduction is claimed; and 3) maintain records pertaining to the claimed deduction.

A “qualified appraisal” must include (among other things) 1) a description of the property in sufficient detail for a person who is not generally familiar with the type of property to ascertain that the property appraised is the property that was contributed; 2) description of the property’s physical condition; 3) valuation method used to determine the fair market value; and 4) the specific basis for the valuation.

The scary part is that if you take the deduction, are audited and then lose your argument for the deduction, you may be subject to a penalty of 20%.  However, below is a checklist of steps to take if you plan on taking a charitable deduction for non-cash property donated in excess of $5,000:

1. Obtain a qualified and timely appraisal for the property  contributed– no earlier than 60 days before the date of the contribution and no later than the due date of the return, including extensions.
2. Be sure the appraisal describes a) the property in sufficient detail for a person who is not generally familiar with the type of property to ascertain that the property appraised is the property that was contributed; b) the property’s physical condition at the date of the donation; c) how fair market value was determined, and d) the specific basis for the valuation.
3. Attach a fully completed appraisal summary (form 8283) to the tax return on which the deduction is claimed and stating the property’s cost and how it was acquired.
4. Maintain meticulous records pertaining to the claimed deduction, and
5. Obtain a contemporaneous written acknowledgment from the done that gives a) a description of the property received, b) a statement as to whether the done was provided any goods or services in exchange, and c) a description and good faith estimate of the value of such goods or services.

If you use the above as a guideline when making non-cash charitable deductions in excess of $5,000, then you will be properly prepared in case of an audit.  To make sure you have properly documented your charitable donation, consult with a tax advisor or legal counsel.