The tax deduction available for making a charitable donation of property may be no more than the fair market value of the property on the date of the gift. Fair market value is the price that a willing buyer and seller would agree to when neither is required to act and both have reasonable knowledge of the relevant facts.
The IRS lists several factors that may be considered in determining fair market value.*
Cost or selling price can be an accurate measure of fair market value when the transaction and the donation dates are close and there has been no change that would affect the item’s value.
Sales of comparable properties may be useful for determining value where the properties sold and the property donated are similar and the sales occurred reasonably close in time to the date of the donation.
Replacement cost may be a good indicator of value in some situations, provided that depreciation is subtracted from the cost to reflect the property’s physical condition and obsolescence.
Expert opinion is relevant to the extent the expert has the appropriate education and experience and has thoroughly analyzed the transaction.
* IRS Publication 561, Determining the Value of Donated Property
Who Qualifies as an Appraiser?
Generally, where a charitable deduction of more than $5,000 is claimed for donated property, the IRS requires a qualified appraisal by a qualified appraiser. A qualified appraiser is someone who:
- Has earned an appraisal designation from a recognized professional organization or has met certain education and experience requirements
- Regularly prepares appraisals for a fee
- Is not an “excluded individual,” such as the donor, the donee, or a party to the transaction in which the donor acquired the property being appraised (Other exclusions apply.)
The qualified appraisal must be signed and dated and can be made no earlier than 60 days before the valued property is donated.
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