A member recently donated his home to our church. Are there specific rules for the church to value this property, or does the burden rest upon the donor to assign value?
Generally, if a claimed deduction for an item or group of similar items of donated property is more than $5,000, the donor must obtain a qualified appraisal by a qualified appraiser, and attach a “qualified appraisal summary” (Section B of IRS Form 8283) to the tax return on which the contribution is claimed. There are some exceptions to these rules. For example, a donor does not need an appraisal if the donated property is nonpublicly traded stock of $10,000 or less; a vehicle (including a car, boat, or airplane) for which the deduction is limited to the gross proceeds from its sale; and certain publicly traded securities. But there is no exception that applies to the donation of a member’s home.
The income tax regulations define a qualified appraisal as an appraisal that (1) is “made, signed, and dated” by a “qualified appraiser”; (2) is made no earlier than 60 days prior to the date of the appraised property was donated; (3) does not involve a prohibited appraisal fee (i.e., based on a percentage of the appraised value or on the amount allowed as a deduction); and (4) includes 12 items of information. In addition, a qualified appraisal must be prepared in accordance with generally accepted appraisal standards and any regulations or other guidance prescribed by the IRS.
A donor must also complete an appraisal summary and enclose it with the tax return on which the charitable contribution deduction is claimed. The appraisal summary is a summary of the qualified appraisal and is made on Section B (side 2) of IRS Form 8283. If the amount of a contribution of property other than cash, inventory, or publicly traded securities exceeds $500,000 (if art, $20,000), the qualified appraisal must be attached to the donor’s tax return. For purposes of the dollar thresholds, property and all similar items of property donated to one or more charities are treated as one property.
The instructions for Form 8283 caution that “your deduction generally will be disallowed if you fail to attach a required Form 8283 to your return or get a required appraisal and complete Section B of Form 8283.” Numerous Tax Court cases have denied charitable contribution deductions to donors who failed to strictly comply with these rules. Many of these cases have been described in this newsletter.
In conclusion, if the member of your church who donated a home to the church failed to obtain a qualified appraisal by a qualified appraiser within 60 days of the date of the donation, then no charitable contribution deduction will be allowed. While compliance with these substantiation rules technically is the donor’s responsibility, the fact is that many donors are not familiar with these substantiation rules and may blame the church if they lose a tax deduction for donated property because of noncompliance with the rules. As a result, it is a “best practice” for churches to assist members who express an interest in donating property that may be valued at more than $5,000 by informing them of the qualified appraisal requirement, providing them with the instructions to Form 8283 (available on the IRS website), and encouraging them to seek the assistance of a tax professional.