A donor who claims a charitable deduction of $5,000 or more for a single item or for multiple similar items of personal or real property must obtain a qualified appraisal of the item’s or group of items’ combined value. This can discourage large property donations because appraisals can be expensive. There are certain exceptions, however, including:
The lack of an appraisal requirement is one reason gifts of publicly traded stock are the most popular noncash donations.
The appraisal must be arranged for and paid for by the donor—the nonprofit cannot help pay for it in any way. Moreover, the donor can’t deduct appraisal fees as part of the charitable contribution. At best, a donor may claim them as a miscellaneous itemized deduction on Schedule A of IRS Form 1040. However, because not all taxpayers itemize their deductions, you should never promise a donor that his or her appraisal fees will be deductible as a miscellaneous itemized deduction. At most, you should say that the fee “may” be deductible depending on the donor’s tax situation.
An appraisal must be “qualified” to satisfy the IRS. A qualified appraisal is one that:
Donors often have old appraisals for expensive property items. Make sure they understand that the appraisal for the IRS must be new—made not more than 60 days before the contribution. And, insurance appraisals are not acceptable.
Not just anyone can conduct an IRS-approved appraisal. To satisfy the IRS, the appraisal must be done by a “qualified appraiser." There are many professional appraiser organizations whose websites donors can use to help them find a qualified appraiser. These include:
It’s perfectly legal and ethical for your nonprofit to recommend an appraiser. However, you cannot have a favorite appraiser who spends most of his or her time dealing with your donors. An appraiser who spends a majority of his or her time conducting appraisals for a single nonprofit cannot be a qualified appraiser under IRS rules.
For more information on appraisals, you can refer donors to IRS Publication 561, Determining the Value of Donated Property, and to IRS Revenue Procedure 96-15. Both can be obtained from the IRS website.