IRS Publication 561

Determining the Value of Donated Property

NOTE: This information has been revised please see our new IRS Publication 561 page for the latest revision.

(Rev. February 2000) Cat. No. 15109Q

Source of excerpt: IRS Publication 561 Determining the Value of Donated Property

http://www.irs.gov/pub/irs-pdf/p561.pdf

What Is Fair Market Value (FMV)?

To figure how much you may deduct for property that you contribute, you must first determine its fair market value on the date of the contribution. Fair market value. Fair market value (FMV) is 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. If you put a restriction on the use of property you donate, the FMV must reflect that restriction.

Determining Fair Market Value

Determining the value of donated property would be a simple matter if you could rely only on fixed formulas, rules, or methods. Usually it is not that simple. Using such formulas, etc., seldom results in an acceptable determination of FMV. There is no single formula that always applies when determining the value of property.

This is not to say that a valuation is only guesswork. You must consider all the facts and circumstances connected with the property, such as its desirability, use, and scarcity.

For example, donated furniture should not be evaluated at some fixed rate such as 15% of the cost of new replacement furniture. When the furniture is contributed, it may be out of style or in poor condition, therefore having little or no market value. On the other hand, it may be an antique, the value of which could not be determined by using any formula.

Cars, Boats, and Aircraft

If you donate a car, a boat, or an aircraft to a charitable organization, its FMV must be determined.

Certain commercial firms and trade organizations publish monthly or seasonal guides for different regions of the country, containing complete dealer sale prices or dealer-average prices for recent model years. Prices are reported for each make, model, and year of used car, aircraft, truck, recreational vehicle, and boat. These guides also provide estimates for adjusting for unusual equipment, unusual mileage, and physical condition. The prices are not "official," and these publications are not considered an appraisal of any specific donated property. But they do provide clues for making an appraisal and suggest relative prices for comparison with current sales and offerings in your area.

These publications are sometimes available at a bank, credit union, or finance company.

Except for inexpensive small boats, the valuation of boats should be based on an appraisal by a marine surveyor because the physical condition is so critical to the value.

Example. You donate your car to a local high school for use by students studying automobile repair. Your credit union told you that the "blue book" value of a car like yours is $1,600 in good condition. However, your car needs extensive repairs. After checking with repair shops and used car dealers, you find that the car should sell for $750. You may use $750 as the FMV of the car.

Appraisals

Appraisals are not necessary for items property for which you claim a deduction $5,000 or less, or for which the value easily be determined, such as securities whose prices are reported daily in the newspapers. However, you generally will need appraisal for donated property for which claim a deduction of more than $5,000. Deductions of More Than $5,000, later.

Deductions of More Than $5,000

Generally, if the claimed deduction for an item or group of similar items of donated property is more than $5,000, other than money and publicly traded securities, you must get a qualified appraisal made by a qualified appraiser, and you must attach an appraisal summary (Section B of Form 8283) to your tax return. You should keep the appraiser's report with your written records.

Qualified Appraisal

Generally, if the claimed deduction for an item or group of similar items of donated property is more than $5,000, you must get a qualified appraisal made by a qualified appraiser and you must attach an appraisal summary to your tax return. See Deductions of More Than $5,000, earlier.

A qualified appraisal is an appraisal document that:

1) Relates to an appraisal made not earlier than 60 days prior to the date of contribution of the appraised property,

2) Does not involve a prohibited appraisal fee,

3) Includes certain information (covered later), and

4) Is prepared, signed, and dated by a qualified appraiser (defined later).

You must receive the qualified appraisal before the due date, including extensions, of the return on which a charitable contribution deduction is first claimed for the donated property. If the deduction is first claimed on an amended return, the qualified appraisal must be received before the date on which the amended return is filed.

An appraisal summary (discussed later) must be attached to your tax return. Generally, you do not need to attach the qualified appraisal itself, but you should keep a copy as long as it may be relevant under the tax law.

Appraisal Summary

Generally, if the claimed deduction for an item of donated property is more than $5,000, you must attach an appraisal summary (Form 8283) to your tax return. Only a partially completed appraisal summary is required in some situations. See Deductions of More Than $5,000, earlier.

Form 8283. Section B of Form 8283 is the appraisal summary. If you do not attach the form to your return, the deduction will not be allowed unless your failure to attach it was due to a good faith omission. If the IRS requests that you submit the form because you did not attach it to your return, you must comply within 90 days of the request or the deduction will be disallowed.

You must attach a separate Form 8283 for each item of contributed property that is not part of a group of similar items. If you contribute similar items of property to the same donee organization, you need attach only one Form 8283 for those items. If you contribute similar items of property to more than one donee organization, you must attach a separate form for each donee.

NOTE: IRS Form 8283 is available at the IRS web page http://www.irs.gov/pub/irs-pdf/f8283.pdf. The instructions for this form can be found at http://www.irs.gov/pub/irs-pdf/i8283.pdf. (You can cut and paste these links).