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Tax Planning & Preparation

Appraisals for Charitable Property Donations

The rules for charitable property donations have gotten tighter in recent years as the Treasury is looking to close the tax gap, or the difference between taxes owed and those actually received.

If you’re thinking of writing off charitable property donations this year, make sure you get the properties appraised.

A Common Mistake

When an individual or business makes charitable property donations valued at more than $5,000.00 each, they need to have the property appraised. “Property” or noncash charitable contributions include anything from a multi-million dollar piece of real estate to an antique piece of furniture valued at $5,001.00.

A qualified appraisal must be attached to the tax return. (Note: there are also very specific requirements on exactly what qualifies as a “qualified appraisal.”)

Improperly Valued Donations

Improperly valued charitable property donations is such a large problem that Congress has been very specific about what the charitably inclined have to do to defend their deductions.

If the Internal Revenue Service (IRS) audits you, it will not be enough to say that you kept the spirit of the rules if you did not actually follow the rules.

One California entrepreneur recently learned this lesson the hard way when the U.S. Tax Court denied his $18.5 million deduction for real estate donations.

The IRS agreed that a donation had been made and that the property was “probably” worth at least $18.5 million. The tax court denied the deduction because he didn’t follow the rules – he didn’t attach a qualified appraisal to his return.

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