More Info Regarding Charitable Contributions of Real Estate

As a CPA or attorney working with clients who desire to make a charitable contribution of real estate to their favorite charity or tax-exempt organization, such as a church or synagogue, there are special rules that have been developed by the IRS for how these contributions must be reported. There are also special rules that affect how the valuation of these contributions must be developed and the appraiser that you employ to appraise these property must be familiar with these regulations.

The information below provides link to the specific IRS documentation and instructions developed by the IRS for these specialized transactions. This information is presented here to act as a guide and brief tutorial for professionals who wish to provide these services to their clients.

IRS Form 8283

Certain charitable contributions will require the taxpayer to file IRS form 8283. The title of the form is "Noncash Charitable Contributions" and is intended to be used in conjunction with both personal and real property donations which meet certain tests. There is a section of the form, the "Declaration of Appraiser" which is to be signed by the appraiser. You can download the complete form from this link.

IRS Publication 561

There is a publication from the IRS entitled "Determining the Value of Donated Property" to help appraisers, as well as others, understand IRS terms and regulations. There are three terms which are of particular interest to appraisers, which are defined and described in the publication. These are Fair Market Value, Qualified Appraisal, and Qualified Appraiser. This link goes to IRS publication 561 on the IRS website.

Within this publication, the IRS defines Fair Market Value (FMV) as "the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts." (IRS 561 pg 2 4/07). It further states, "If you put a restriction on the use of property you donate, the FMV must reflect that restriction." (IRS 561 pg 2 4/07)

On page 9 of IRS publication 561, (revised 4/07), is the section headed "Qualified Appraisal" and refers to an appraisal that is made, signed and dated by a qualified appraiser in accordance with generally accepted appraisal standards. The apprasial must also meet the relevant requirements of Regulations section 1.129A-13(c)(3) and Notice 2006-96, 2006-46 I.R.B. 902. It is important that you read and understand what constitutes a qualified appraisal. A qualified appraisal is an appraisal document that "Relates to an appraisal made not earlier than 60 days before the date of contribution of the appraised property".

There are further qualifications to define a "Qualified Appraiser" (see page 10 of IRS Publication 561) and details of the documents that are to be completed by the appraiser, such as Form 8283.

IRS publication 561 includes information about prohibited appraisal fees. "Prohibited appraisal fee" means a "contingent fee". As in other appraisal assignments, the fee for an appraisal cannot be based on what the property appraises for. The IRS advises, "Generally, no part of the fee arrangement for a qualified appraisal can be based on a percentage of the appraised value of the property. If a fee arrangement is based on what is allowed as a deduction, after Internal Revenue Service examination or otherwise, it is treated as a fee based on a percentage of appraised value…" (IRS 561 pg 10 4/07).

Summary of Appraisal Requirements from IRS Publication 561

The appraisal report is required to:

  1. Include a description of the property in sufficient detail for a person who is not generally familiar with the type of property to determine that the property appraised is the property that was (or will be) contributed,
  2. Describe the physical condition of the property,
  3. Describe the terms of the agreement or understanding entered into for the assignment,
  4. Include a statement that the appraisal was prepared for income tax purposes,
  5. Report the date of the contribution and the appraised Fair Market Value (FMV) on the date (or expected date) of contribution,
  6. Include the qualifications of the qualified appraiser who signs the appraisal, including the appraiser's background, experience, education, and any membership in professional associations,
  7. Report the name, address, and taxpayer identification number of the qualified appraiser and, if the appraiser is a partner, an employee, or an independent contractor engaged by a person other than the donor, the name, address and taxpayer identification number of the partnership or person who employs or engages the appraiser,
  8. Report the method of valuation used to determine FMV, and the specific basis for the valuation.

These requirements are essential and if the IRS determines that the donor has not complied with the regulations, there are significant monetary and criminal penalties for the donor or the professionals working with the donor.

Call or email us anytime to discuss the needs of your clients or to order an appraisal of a residential property or land. Home Analytics can provide valuation services as well as experience advice in the preparation and use of an appraisal for Charitable Contributions, Gifts of Real Estate, or Trusts that involve a Real Property component.