Donating non-cash gifts or property to charity can provide a valuable tax deduction. In many cases, you may deduct the property’s fair market value on the date of the donation. However, the IRS closely scrutinizes these deductions because of past abuses involving inflated valuations.
IRS Requirements for Non-Cash Charitable Donations Over $5,000
If you claim a charitable deduction of more than $5,000 for a single item—or for multiple similar items of property—you must comply with strict IRS substantiation rules. Failure to follow these rules can cause the IRS to completely deny your deduction, even if the donation itself was legitimate.
Three Steps to Protect Your Charitable Deduction
To protect your deduction, you generally must complete three steps:
- Obtain a written acknowledgment from the charity describing the donated property and confirming whether you received anything in return.
- Obtain a qualified appraisal from an independent qualified appraiser.
- File IRS Form 8283 with your tax return, including signatures from both the appraiser and the charity.
Qualified Appraisal Requirements for Non-Cash Gifts
The appraisal requirement often creates the most problems. Proper documentation is required when claiming non-cash gifts over $5,000. The appraisal must be completed no earlier than 60 days before the donation and no later than the due date of your tax return, including extensions. You cannot use an old appraisal or an insurance appraisal.
The appraiser must have appropriate education and experience valuing the specific type of property involved and must regularly perform paid appraisals. The appraiser also must remain independent.
Importantly, these appraisal rules also apply to digital assets such as Bitcoin and other cryptocurrencies, even though they trade on public exchanges.
The IRS may impose substantial penalties for inflated appraisals, including penalties of 20 percent of the resulting tax underpayment, or even 40 percent in serious cases.
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