A qualified appraisal is an assessment of the value of an item or a group of items, such as real estate or art and it's made by a qualified professional.
These assessments may be necessary to help you properly claim tax deductions if you’re making large noncash donations. Let’s take a closer look at them and at what qualified appraisals mean in the context of charitable contributions.
Definition and an Example of a Qualified Appraisal
A qualified appraisal essentially is a third-party verification of the value of something that’s being donated. A qualified appraisal is often needed for noncash charitable contributions for each item or group of items worth more than $5,000.
If you're donating a piece of art, you can’t just say the artwork is worth $10,000 so that you can take a large charitable deduction. You would have to get a qualified appraisal to help support your claim.
You generally only have to attach the qualified appraisal to your tax return if you’re claiming a tax deduction of more than $500,000 for donated property. Otherwise, for all donations of $5,000 or more up to $500,000, you can keep the qualified appraisal document for your records. That being said, you'll need to file Form 8283 to report this information.
However, some rules apply based on the type of item being donated. You must get a qualified appraisal for a piece of art valued at more than $5,000, but you also have to submit the qualified appraisal with your tax return if the art is valued at $20,000 or more.
The property must be reviewed by a qualified appraiser to count as a qualified appraisal. One of the main requirements is that the assessor needs to have “an appraisal designation from a generally recognized professional appraiser organization,” according to the Internal Revenue Service (IRS). They could also meet similar educational and professional experience requirements, as defined by the IRS.
How Qualified Appraisals Work
A qualified appraisal works by having a qualified appraiser review the value of property that you’re donating. The appraisal must be dated within the time frame of 60 days prior to the donation up until the day of the donation. The appraiser must still appraise what the value was based on this earlier time frame if the valuation assessment is done after you make the donation.
The qualified appraisal must also be made “before the due date, including extensions, of the return on which a charitable contribution deduction is first claimed for the donated property,” according to the IRS.
Another factor to consider is that you typically can’t pay a percentage of appraised value as a fee to the appraiser. That would mean the appraiser makes more money if the item is appraised for more.
You must generally get separate assessments for each contribution if you make multiple donations that meet the threshold for requiring qualified appraisals. An exception exists if a group of similar items makes up a single donation in a single tax year.
What Qualified Appraisals Mean for Individuals
Qualified appraisals often apply to relatively large donations, so this may not be a tax-planning issue many people run into frequently. But those who typically make significant noncash charitable contributions may want to pay close attention to these rules.
Even though most qualified appraisals apply to relatively big-ticket items, some individuals may need a qualified appraisal when donating clothing or household items for which you take a deduction of more than $500. However, this requirement only applies when donating these types of items that are not in “good used condition or better,” according to the IRS.
Individuals who donate vehicles might have to file Form 8283, but you generally don’t need a qualified appraisal in this situation.
- A qualified appraisal involves a valuation assessment of donations.
- Qualified appraisals are generally required when claiming a deduction for a noncash charitable contribution of more than $5,000.
- The assessment must be done by a qualified appraiser who meets certain requirements that support their ability to make valuations.