It appears to be typical of any IRS codification or procedural direction, that the end result must be confusion. Obtaining clarification may involve hours of wait-time to speak to a real person or a head-first dive down the rabbit hole of reading scholarly articles on a CPA or tax attorney’s interpretation of said codification. When it comes to appraisers, they may inadvertently interpret IRS publications incorrectly and expose the client to risk for an audit and the subsequent loss of their non-monetary charitable contribution deduction due to failure to procure proper documentation.
Thankfully, the American Society of Appraisers (ASA) recently acquired clarification from the IRS on the publications leaving enough expansive vagary through which the metaphorical truck could be driven.
Protecting these “carrots” is critically important. Let us take a deeper dive into the potential pitfalls already besetting the non-monetary donation industry.
- If a client donates 2 dissimilar items, do they need a separate appraisal for each item?
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- Per the IRS, you do not need separate appraisals, though you will need to have separate “chapters” or “sections” for each item. However, you do need two separate 8283 tax forms.
- If a client makes several donations under $5,000 in a year, do they need an appraisal for all of the items donated?
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- If you have made several donations under $5,000 of dissimilar items, you do not need an appraisal. On the other hand, if you have made several donations under $5,000 of similar items and the aggregate exceeds $5,000, even if these donations were made to several different charities, the IRS does require you to obtain an appraisal for all similar items.
- Do you need separate appraisals and/or 8283s if you donate to several different charities?
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- You do not need a separate appraisal for donations made to several charities, however, you will need an 8283 for each charity.
“The phrase “similar items” means property of the same generic category or type (whether or not donated to the same donee), such as stamp collections, coin collections, lithographs, paintings, photographs, books, non-publicly traded stock, non-publicly traded securities other than non-publicly traded stock, land, buildings, clothing, jewelry, furniture, electronic equipment, household appliances, toys, everyday kitchenware, china, crystal or silver.”
The strategy to employ appears to be: When in Doubt, Sort it Out! If donating furniture from the home and you have any inclination of donating furniture later in the year, fully document the donation. Documentation includes photographs clearly showing condition of the material and a description of the type and brand of furnishings. At year-end, sort through donations and determine if the aggregate of any one category exceeds the $5,000 value level. With proper documentation a qualified appraiser will be able to produce an appraised value to file on form 8283 for each charity to whom you gave.
Reference Links:
IRS Publication 561: https://www.irs.gov/pub/irs-pdf/p561.pdf
