WealthBuilder Login 

Please click here to access your WealthBuilder site.

MYSTREETSCAPE Login 

Please click here to access your MyStreetScape site.

Fiduciary Briefcase Login

Please click here to access your Fiduciary Briefcase site

Follow Us

   

Subscribe Today 

Partners Wealth Management offers a complimentary Quarterly Newsletter with a column written by our Managing Partner, John Freiburger, featuring articles of interest.
Monthly Retirement Report, a publication available on our website, provided by our Director of Retirement Plan Solutions, Mary Patch.
Drawn to a more frequent publication? Subscribe to our Weekly Market Report, a short emailed piece containing news of interest and updates on the financial markets.
More Articles  Printer Friendly Version

 

When Do You Need An Appraisal?

Are you planning to donate real estate to charity? The tax law allows you to claim deductions, within generous limits, for giving property to qualified charitable organizations. But you have to meet strict requirements, including the necessity to obtain an independent appraisal for property valued at more than $5,000.

In fact, in a recent case, a taxpayer who donated real estate worth approximately $18 million failed to provide the required appraisal, and after an audit, the IRS challenged his charitable deductions. The Tax Court’s verdict? His deduction was zero!

The basic rules for deducting gifts of property say you can’t use those donations to write off more than 30% of your adjusted gross income (AGI). Overall, your charitable deductions can’t exceed 50% of your AGI for the year. But if you exceed those levels, you can generally deduct the rest in future tax years. (Itemized deductions may be reduced for certain upper-income taxpayers.) 

If you donate property that has gained value, the deductible amount is equal to the fair market value (FMV) of the property at the time of the donation, as long as you’ve owned it for more than one year. For shorter-term gifts of property, the deduction is limited to your “basis” (usually, what you paid for it).

However, the IRS requires you to jump through a few hoops before you can pocket any tax deductions. When you file your tax return, you must include a detailed description and other information for property valued at more than $500. Also, if you claim the FMV is more than $5,000, you must obtain a written appraisal of its worth.

In the case of the above disallowed deduction, Mr. Mohamed was a prominent entrepreneur, real estate broker, and certified real estate appraiser. He donated several parcels of property to a charitable remainder trust during a two-year period. When he completed his tax returns for those two years, he attached Form 8283 (Noncash Charitable Contributions). Based on his own appraisals, the total FMV of the properties exceeded $14 million (although his initial deduction was “only” $3.8 million due to the AGI limits).

But Mohamed didn’t read the form’s instructions explaining that self-appraisals aren’t permitted. He also omitted important information such as the basis of the properties. The IRS challenged the deductions. When Mohamed appealed to the Tax Court, the IRS disallowed the entire deduction, despite subsequent independent appraisals establishing the total FMV at more than $18 million. In the end, the Tax Court agreed with the IRS, although it acknowledged the result was harsh.

The moral of this story is that if you donate appreciated property, you need to make sure you observe the strict letter of the law.


Email this article to a friend


Index
Find Extra Benefits In DI Insurance
5 Ways To Handle Problem Employees
Crash Course On Paying For College
Nine Reasons To Consolidate Debt
Where Will You Live After You Retire?
Straight Talk About Living Trusts
Which Type Of IRA Do You Prefer?
Many Women Face Special Challenges As Retirement Nears
Dust Off Life Insurance Policies

This article was written by a professional financial journalist for Partners Wealth Management and is not intended as legal or investment advice.

©2017 Advisor Products Inc. All Rights Reserved.

Financial Briefs

Find Extra Benefits In DI Insurance
The odds that you'll suffer a disabling injury or illness are far greater than..
read more >>


5 Ways To Handle Problem Employees
Do you have one or more "problem employees" at your company? ..
read more >>


Crash Course On Paying For College
There's good news in the mail: Johnnie or Susie just got accepted into a top..
read more >>


YOUR FINANCIAL PICTURE