Complete Guide to IRS Qualified Appraisals: Requirements, Finding Qualified Appraisers & More

If you need an appraisal for IRS purposes then then this is the right article for you.  This article will teach you about  IRS Qualified Appraisals.

  • What is a IRS Qualified Appraisal?
  • What are the requirements of a Qualified Appraisal?
  • What is a IRS Qualified Appraiser?
  • What are common uses of an IRS Qualified Appraisal?
  • Example of a Real Estate Charitable Contribution Requiring an IRS Qualified Appraisal
  • How to find an IRS Qualified Appraiser?

 What is a IRS Qualified Appraisal?

An IRS qualified appraisal is a formal, professional evaluation of the value of property, conducted according to specific guidelines established by the Internal Revenue Service (IRS). This type of appraisal is necessary for substantiating the value of certain charitable contributions, estate and gift tax valuations, and other tax-related matters.

What are the requirements of a Qualified Appraisal?

The following are the requirements for a Qualified Appraisal.

  1. Qualified Appraiser – The appraisal must be conducted by a qualified appraiser, who is someone with the necessary education, experience, and credentials to perform appraisals of the specific type of property being valued.
  2. Timing of the Appraisal – The appraisal must be completed no earlier than 60 days before the date of the contribution or other relevant event and no later than the due date of the tax return (including extensions) on which the deduction is claimed.
  3. Detailed Appraisal Report – The appraisal report must be thorough and detailed, including:
      • A detailed description of the property.
      • The physical condition of the property.
      • The date of the contribution or relevant event.
      • The terms of any agreement or understanding relating to the use, sale, or other disposition of the property.
      • The appraiser’s qualifications.
      • A statement that the appraisal was prepared for income tax purposes.
      • The method of valuation used to determine the fair market value.
      • The specific basis for the valuation, including any data used (e.g., comparable sales, market data).
  4. Appraisal Fee – The fee for the appraisal cannot be based on a percentage of the appraised value of the property. It must be a flat fee or hourly rate to ensure objectivity and independence.

What is a IRS Qualified Appraiser?

An IRS Qualified Appraiser is an individual who meets specific criteria set by the Internal Revenue Service (IRS) to perform appraisals for tax purposes. These criteria ensure that the appraiser is competent, independent, and able to provide accurate valuations. Here are the key characteristics and requirements for an IRS Qualified Appraiser:

  1. Professional Qualifications:
    • Education and Training: The appraiser must have completed professional or college-level coursework in valuing the type of property being appraised.
    • Experience: They should have verifiable experience in appraising the type of property for which the appraisal is performed.
  2. Certification and Licensing:
    • The appraiser must be licensed or certified in the state in which they practice, if applicable, and meet the regulatory requirements for the type of property being appraised.
  3. Professional Designations:
    • Holding a professional designation from a recognized appraisal organization (e.g., the Appraisal Institute, the American Society of Appraisers, the International Society of Appraisers) can help establish the appraiser’s qualifications.
  4. Regular Practice:
    • The appraiser must regularly perform appraisals for compensation. This means they should be actively engaged in the appraisal profession.
  5. Independence:
    • The appraiser should not have a prohibited relationship with the donor or donee, meaning they should not be related or have any conflict of interest that could affect their impartiality.
  6. Compliance with Standards:
    • The appraiser must adhere to the Uniform Standards of Professional Appraisal Practice (USPAP) or similar professional appraisal standards.

Specific IRS Requirements

According to the IRS regulations (Treasury Regulation Section 1.170A-13(c)(5)), a qualified appraiser is defined as an individual who:

  1. Has Earned an Appraisal Designation:
    • From a recognized professional appraisal organization for demonstrated competency in valuing the type of property being appraised, or
  2. Meets Education and Experience Requirements:
    • Has completed coursework in valuing the type of property and has at least two years of experience in regularly performing appraisals for that type of property.
  3. Complies with IRS Regulations:
    • Is not prohibited from practicing before the IRS at any time during the three years preceding the appraisal.
    • Demonstrates verifiable education and experience in valuing the type of property being appraised.

What are Common Uses of an IRS Qualified Appraisal?

An IRS qualified appraisal is used for various tax-related purposes where the value of property must be substantiated. Here are some common uses:

  1. Charitable Contributions – Noncash Charitable Contributions
  • Purpose: To claim a tax deduction for donated property.
  • Requirements: If the donated property’s value exceeds $5,000, an IRS qualified appraisal is necessary to substantiate the claimed deduction.
  • Documentation: The donor must attach Form 8283, “Noncash Charitable Contributions,” to their tax return, including the appraisal details.
  1. Estate and Gift Tax Valuations

Estate Tax

  • Purpose: To determine the fair market value of the decedent’s property for estate tax purposes.
  • Requirements: An accurate valuation is crucial for calculating the estate’s tax liability.
  • Documentation: An appraisal helps establish the value of real estate, personal property, and business interests included in the estate.

Gift Tax

  • Purpose: To determine the value of gifts for tax purposes.
  • Requirements: If the value of a gift exceeds the annual exclusion amount, an appraisal may be needed to accurately report the gift’s value on a gift tax return (Form 709).
  1. Casualty and Theft Losses

Insurance Claims and Tax Deductions

  • Purpose: To substantiate the value of property lost due to casualty (e.g., natural disasters) or theft.
  • Requirements: An appraisal establishes the property’s value before and after the loss to determine the deductible amount.
  • Documentation: Required for both insurance claims and for claiming casualty loss deductions on a tax return.
  1. Divorce Settlements

Property Division

  • Purpose: To equitably divide marital property between spouses.
  • Requirements: An appraisal provides an unbiased valuation of assets such as real estate, personal property, and business interests.
  • Documentation: Appraisal reports are used in legal proceedings to support property division agreements.
  1. Financial Reporting and Compliance

Business Valuations

  • Purpose: For financial reporting, mergers, acquisitions, and compliance with tax regulations.
  • Requirements: An appraisal determines the value of a business or its assets.
  • Documentation: Used in financial statements, purchase price allocations, and tax compliance.
  1. Retirement Plan Asset Valuations

Self-Directed IRAs

  • Purpose: To determine the value of non-traditional assets held in self-directed IRAs, such as real estate.
  • Requirements: An appraisal ensures accurate reporting of the asset’s value to the IRS.
  • Documentation: Required for annual reporting and when taking distributions from the IRA.
  1. Determining Basis for Capital Gains

Property Sales

  • Purpose: To establish the property’s basis for calculating capital gains tax.
  • Requirements: An appraisal can help determine the property’s value at the time of acquisition or improvements, affecting the calculation of gain or loss on sale.
  • Documentation: Used to substantiate the basis in the event of an IRS audit.

Example of a Real Estate Charitable Contribution Requiring an IRS Qualified Appraisal:

Scenario: You donate a commercial property to a qualified charitable organization, and the property’s fair market value is $100,000.

  1. Qualified Appraiser: Hire a qualified real estate appraiser with appropriate credentials and experience.
  2. Appraisal Report: Obtain a detailed appraisal report that complies with IRS regulations.
  3. Form 8283: Complete Form 8283, including the appraiser’s declaration and the donee organization’s acknowledgment.
  4. Tax Return: Attach Form 8283 and the appraisal report to your tax return to claim the charitable deduction.

In summary, an IRS qualified appraisal is used in various contexts to ensure accurate and credible valuations for tax reporting, compliance, and financial planning.

How to find an IRS Qualified Appraiser?

If you need an IRS Qualified Appraiser,  please let Vanguard Realty Advisors assist you.  We can help you navigate and understand the commercial appraisal process. Please contact us to request a quote.