Donation Valuation

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Commercial RE Appraisal & Cost Segregation


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email: david@myaacg.com
 
David Hahn, CVA, ASA, MAFF, CM&AA, CCIM, MBA

Donation Valuation


We are experts in the valuation of assets for gift and estate tax planning as well as the Donation Valuation to the Charitable Organizations or qualified non-profit organizations.

The items donated are tax deductible but if the value of the materials is $5000 or more per item or similar group of items they must be appraised by an IRS qualified appraiser familiar with the process and the items must be listed in Section B of IRS form 8283. To receive the tax benefit you must submit a donation receipt, from the donee, along with the completed form 8283 and a copy of the qualified appraisal.

For more information on what constitutes a "group of similar items", and for other information regarding noncash charitable contributions please refer to IRS form 8283 and publication 561. Additional information is available at www.irs.gov.

Inventory & Stock Items Donated to Charitable Organization
- Original purchase price at cost or fair market value- must be valued by an IRS qualified appraiser and the appraiser must sign the IRS form 8283.

Any other single item - value of $5,000 or more
Other items donated, the value of the item of $5,000 or more, must be valued by an IRS qualified appraiser and the appraiser must sign the IRS form 8283.

  • Gifts to Charitable Remainder Trusts
  • Gifts for Conservation Easement
  • Deconstruction Donation Appraisals

Gifts to Charitable Remainder Trusts

A Charitable Remainder Trust normally is used as a strategy for converting highly appreciated assets into income producing assets, without income tax liability. The Charitable Remainder Trust is an irrevocable trust with both charitable and non-charitable beneficiaries.

The donor transfers highly appreciated assets into the trust and retains an income interest. Upon expiration of the income interest, the remainder in the trust passes to a qualified charity of the donor's choice.

If properly structured, the CRT permits the donor to receive income, estate, and/or gift tax advantages. These advantages often provide for a much greater income stream to the income beneficiary than would be available outside the trust.

Unitrust vs. Annuity Trust

There are two types of CRT the Unitrust and the Annuity Trust. The main difference between the two is the way your annual income, paid to you by the trust, is calculated.

Under the provisions of a Unitrust, the annual payment to you must be a fixed percentage of the market value of a trust's assets as determined each year or, alternatively, the lesser of 5 percent of such value or the trust's income. You can see that there are no guarantees of the specific amount you will receive. Your payments will depend upon the changing values of the trust property or income from year to year.

Using an Annuity trust, the trust specifies an annual amount to be paid to you. This guarantees that you will receive a specific amount which you can depend upon every year.

Charitable Remainder Trust - Potential Benefits

  • Eliminate Capital Gains Tax
  • Tax deductible transfers to trust
  • Trust income can be significantly greater than income generated outside trust
  • You choose duration of income from trust
  • Increased retirement income
  • Eliminate estate tax on trust assets
  • Preserve estate for family & heirs through survivorship policy funded with added income
  • Provide charitable bequests to the causes of your choice

Those Who Would Benefit Most From a CRT May Have Some of the Following Characteristics

  • Own highly appreciated assets
  • Would like to reposition such assets
  • Are in a high income tax bracket
  • Are subject to estate tax at death
  • Have philanthropic desires



    Note: Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information

    has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice.







    Gifts for Conservation Easement

    Introduction:
    Landowners choosing to preserve their land by donating a qualified conservation easement must get an appraisal to document the value of their donation for tax purposes. The objective of a conservation easement appraisal for federal income tax purposes is to determine the fair market value of the donated easement. IRS regulations require a “qualified appraisal” done by a “qualified appraiser”. This should result in a thorough, unbiased review of the value of the property rights being extinguished by the donor as a result of the conservation easement.

    Qualified Appraiser:

    According to the IRS regulations, a “qualified appraiser” is a person who:

    • Holds himself or herself out to the public as an appraiser or performs appraisals on a regular basis;
    • Is qualified to make appraisals of the type of property being valued;
    • Is not the donor, donee, or a party to the transaction. In addition, the appraiser cannot be an employee of, regularly used by, or related to any of the previously mentioned persons; and
    • Understands that an intentionally false or fraudulent overstatement of property value may subject them to a civil penalty.

    Qualified Appraisal:

    According to the IRS regulations, a “qualified appraisal” must include:

    • A property description sufficient to determine that the property appraised is the same as the property on which an easement was donated;
    • A summary of the property’s physical condition;
    • The date of the contribution and the date upon which the property was appraised;
    • The terms of any agreement by or on behalf of the donor that relates to the use, disposal, sale or disposition of the property;
    • The appraiser’s identity and his relationship to the parties of the transaction;
    • The appraiser’s qualifications;
    • A statement that the appraisal was prepared for income tax purposes; and,
    • The fair market value of the property and the method and basis used for valuation.

    Easement Values

    The value of typical easements ranges between 25% -50% of the “before” value of land. Values have been as high as 75% (e. g. where high-density zoning exists) and as low as 10% (e. g. where there is little development potential) of the “before” value.

    Timing of an Appraisal

    An appraisal must occur no earlier than 60 days prior to the date of contribution of the easement and no later the due date of the income tax return on which a deduction for the gift is first claimed or reported.

    Cost of an Appraisal

    It is important to note that no part of the fee arrangement for the appraisal can be based on a percentage of the appraised value of the property. The cost of the appraisal and other expenses associated with the donation are deductible expenses.

    Enhancement

    In addition, the appraiser must take into accounty what is refered to as the “Enhancement Effect.” There is the possibility that a conservation easement will have the effect of increasing or “enhancing” the value of adjacent or nearby land due to its proximity to the easement property. The IRS code states that if this effect is apparent on lands that are owned by the donor, or the donor’s relatives or associates, then the appraiser should subract the increase in value to these adjacent properties from the value of the donated easement.

    Penalties for Overvaluation

    Be aware that the IRS can attach penalties for the overvaluation of a donation on an income tax return or the undervaluation of land subject to a conservation easement on a gift or estate tax return.

    Appraisal Method:

    The value of a donated easement, as determined by a qualified appraiser, equals the difference between the fair market value of the property “before” and “after” the easement takes effect. The “before” value of the property will be based on the property’s highest and best use. The “before” value will typically be the land’s development value while unencumbered by a conservation easement. The “after” value will be based on the restrictions placed on the property by the conservation easement. As a result, the greater the number of restrictions, the greater the reduction in value, and the greater the easement value. Where possible, appraisers should also take into account the sale of comparable properties that are encumbered with similar restrictions.


    Deconstruction Donation Appraisals

    If you choose deconstruction the materials from your home may be donated to a non profit recycling company instead of ending up in a landfill. You would be eligible for a tax deduction to help offset the costs of deconstruction. You end up with a tax donation and help green the earth at the same time.

    Why an appraisal? The items donated are tax deductible but if the value of the materials is $5000 or more per item or similar group of items they must be appraised by a certified licensed appraiser familiar with the process and the items must be listed in Section B of IRS form 8283. To receive the tax benefit you must submit a donation receipt, from the donee, along with the completed form 8283 and a copy of the qualified appraisal.

    If you believe your single item or group of similar itmes donation of building materials value is under $5000 and would like help with the valuation of those materials, please let us know.

    For more information on what constitutes a "group of similar items", and for other information regarding noncash charitable contributions please refer to IRS form 8283 and publication 561. Additional information is available at www.irs.gov.

    The Appraisal Process: When you have decided to go the deconstruction route, you hire the appraiser. The appraiser will inspect the property, measure the building and photograph the interior and exterior. He/she will need to know if you plan on keeping any of the items. Cabinets, appliances in working order and light fixtures are included in the donation as well as siding, roofing, flooring, wall structure, windows, etc.

    Once the Donee has itemized the donations the list is sent to the appraiser. This can take up to 1-3 months. Within 2 weeks of receipt of the list by the appraiser your appraisal and IRS form 8283 are finished and delivered.

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