Suppose you intend to donate personal property that has appreciated in value — say, artwork or a family heirloom — to one of your favorite charities. Generally, if you itemize deductions on your tax return, you can benefit from generous tax rules. However, for certain large donations, you must obtain an independent “qualified appraisal” to preserve your deduction.

Charitable donation basics

When you donate property that you have owned for longer than one year, you may generally deduct the current fair market value (FMV) of the property, rather than its cost. For instance, if you bought a painting for $5,000 five years ago that is worth $7,500 when you donate it, you can deduct the entire $7,500. There is no tax on the appreciation in value.

Conversely, if the painting is worth $4,500 when it is donated, you can only deduct the amount of the current FMV, or $4,500. Also, if youve owned appreciated property for a year or less, your deduction is limited to the cost.

When do you have to get an appraisal?

For gifts of personal property valued above $5,000, you must attach an appraisal to your tax return. To qualify, the appraiser must have met certain education and accreditation requirements, be experienced with the type of property being appraised, regularly offer appraisals in exchange for compensation and otherwise comply with IRS regulations.

When do you NOT have to get an appraisal? No appraisal is required when you donate:

  • Appreciated property owned less than a year
  • Publicly traded securities
  • Non-publicly traded stock of $10,000 or less
  • A vehicle where the deduction is limited to the gross proceeds from its sale

Be aware that other special rules for charitable deductions may come into play. The best approach is to call before you make large gifts of personal property. If you have any questions on charitable appraisal, give us a call. We’re here to help!