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Thanks for reading the 25 Days of Giving series where we’re “unwrapping” important info on various aspects of charitable giving each day through Christmas. Share with friends, family, & colleagues to inspire others to to also make meaningful gifts this season.

If you’re making a non-cash charitable donation of over $5,000, first off, high five! That’s going to go a long way toward helping your favorite charity or advancing a cause you feel passionate about. Because you’re a smart donor, you’re also probably planning to claim the federal income tax charitable deduction as a way of reducing your taxes. In order to do this, gifts of that size come with specific requirements from the IRS that you’ll want to be sure to meet.

Requirements for “qualified appraisal” and “qualified appraiser”

Non-cash gifts of more than $5,000 in value, with exceptions, require a qualified appraisal completed by a qualified appraiser. The terms “qualified appraisal” and “qualified appraiser” are very specific and have detailed definitions according to the IRS.

Qualified appraisal

pens and papers

A qualified appraisal is a document which is:

  1. made, signed, and dated by a qualified appraiser in accordance with generally accepted appraisal standards;
  2. timely;
  3. does not involve prohibited appraisal fees; and
  4. includes certain and specific information.

Let’s further examine each of these four requirements.

“Qualified appraiser:” Appraiser education and experience requirements

An appraiser is treated as having met the minimum education and experience requirements if she is licensed or certified for the type of property being appraised in the state in which the property is located. For a gift of real estate in Iowa this means certification by the Iowa Professional Licensing Bureau, Real Estate Appraisers.

Further requirements for a qualified appraiser include that s/he:

  1. regularly performs appraisals for compensation;
  2. demonstrates verifiable education and experience in valuing the type of property subject to the appraisal;
  3. understands she may be subject to penalties for aiding and abetting the understatement of tax; and
  4. not have been prohibited from practicing before the IRS at any time during three years preceding the appraisal.

Also, a qualified appraiser must be sufficiently independent. This means a qualified appraiser cannot be any of the following:

  1. the donor;
  2. the donee;
  3. the person from whom the donor acquired the property [with limited exceptions];
  4. any person employed by, or related to, any of the above; and/or
  5. an appraiser who is otherwise qualified, but who has some incentive to overstate the value of the property.

Timing of appraisal

watch on wrist

The appraisal must be made not earlier than 60 days prior to the gift and not later than the date the return is due (with extensions).

Prohibited appraisal fees

The appraiser’s fee for a qualified appraisal cannot be based on a percentage of the value of the property, nor can the fee be based on the amount allowed as a charitable deduction.

Specific information in required in appraisal

Specific information must be included in an appraisal, including:

  1. a description of the property;
  2. the physical condition of any tangible property;
  3. the date (or expected date) of the gift;
  4. any restrictions relating to the charity’s use or disposition of the property;
  5. the name, address, and taxpayer identification number of the qualified appraiser;
  6. the appraiser’s qualifications, including background, experience, education, certification, and any membership in professional appraisal associations;
  7. a statement that the appraisal was prepared for income tax purposes;
  8. the date (or dates) on which the property was valued;
  9. the appraised fair market value on the date (or expected date) of contribution;
  10. the method of valuation used to determine fair market value;
  11. the specific basis for the valuation, such as any specific comparable sales transaction; and
  12. an admission if the appraiser is acting as a partner in a partnership, an employee of any person, or an independent contractor engaged by a person, other than the donor, with such a person’s name, address, and taxpayer identification number.

Appraiser’s dated signature and declaration

signature on paper

Again, a qualified appraisal must be signed and dated by the appraiser. Also, there must be a written declaration from the appraiser she is aware of the penalties for substantial or gross valuation.

Reasonable cause

Tax courts have held that a taxpayer’s reliance on the advice of a professional, such as an attorney or CPA constitutes reasonable cause and good faith if the taxpayer can prove by a preponderance of the evidence that: (1) the taxpayer reasonably believed the professional was a competent tax adviser with sufficient expertise to justify reliance; (2) the taxpayer provided necessary and accurate information to the advising professional; and (3) the taxpayer actually relied in good faith on the professional’s advice.

If this sounds like a lot, know you don’t have to navigate these requirements just by yourself. Contact me at any time to discuss your situation and charitable giving goals. We’ll figure out the best course of action together.

woman holding sparkler for stocks

Thanks for reading the 25 Days of Giving series. We’re “unwrapping” posts on various aspects of charitable giving each day through Christmas.

A less-than-obvious, but ideal asset for charitable donations is appreciated, long-term, publicly traded stock. Before we list the benefits, let’s break down the terms.

Definitions

Appreciated simply means increased in value.

Long-term means stock held for more than one year; stock held for 366 days. A long-term capital asset is generally taxed at a lower rate.

Publicly traded stock just means a publicly held company whose ownership is dispersed among the general public in many shares of stock which are freely traded on a stock exchange or in over the counter markets.

Benefits

The benefits of charitable gifts of appreciated, long-term, publicly traded stock are numerous.

Under federal tax law, charitable gifts of appreciated, long-term stock have a double benefit: (1) the long-term capital gain is excluded from taxable income, and (2) the charitable contribution deduction is the fair market value of the stock. Click to this other blog post I wrote to see a case study example comparing a donation of straight cash versus a donation of appreciated stock. 

Iowa law also provides a third benefit for making a charitable gift of stock; donors can receive a state tax credit of 25% of the gift under the Endow Iowa Tax Credit Program. Interested? Explore the details of Endow Iowa here.

As if that wasn’t enough to convince you there’s yet another benefit. The substantiation rules for gifts of donated securities are more relaxed than for gifts of other type of donated property. Gifts of publicly traded securities do not require an appraisal to document value. This is important, as non-cash gifts of more than $5,000 generally require a qualified appraisal by a qualified appraiser. This requirement can be quite complicated, so you’re welcome to read more on it here. (In case you were wondering, the value of gifts of publicly traded securities are based on a simple calculation: the arithmetic mean of the highest and lowest selling prices on the date of the gift.)


If you’re interested in gifting stock to a qualified charity as a part of your end of year giving, make sure you’re doing so in a way that maximizes all of your financial benefits. Or, if you’re a nonprofit leader wanting to accept gifts of stocks, don’t hesitate to reach out via email or phone (515-371-6077) if you would like to discuss further.