Qualified Appraisal: Definition & Overview

KEY TAKEAWAYS

• A qualified appraisal is the process of valuing different properties and assets.
• Qualified appraisals must be conducted by a qualified appraiser. The appraiser must also meet the relevant education and experience requirements.
• There can be any number of reasons for a qualified appraisal. Some of the most common reasons are charitable donations, taxation, and insurance claims.

What Is a Qualified Appraisal?

A qualified appraisal is a type of assessment that determines the value of something. They’re often used in real estate and they must get conducted by a qualified professional. However, there can be a range of reasons why an individual might need a qualified appraisal.

Qualified appraisals help to ensure you’re claiming your tax deductions properly. Many times, qualified appraisals are needed to claim tax deductions. This can be typical if you have large noncash donations. This could be a charitable deduction, for example.

How a Qualified Appraisal Works

The first step in a qualified appraisal is to have a qualified appraiser review the total value. They will look into what you’re donating, such as a property. The appraisal needs to be dated within a certain timeframe. This includes within 60 days of when the donation is first made, all the way to the exact date of the donation.

However, a valuation assessment can sometimes occur after you make a donation. In this case, you need to have the appraiser appraise the value of the property based on the earlier time frame. Every type of appraisal has certain Internal Revenue Service (IRS) standards to meet.

This is why you must have a qualified appraiser conduct the assessment. You want to ensure it’s completed properly. To be a qualified appraiser, they must earn an appraisal designation. This is often from a recognized professional appraiser organization with appraisal classes.

The qualified appraiser gets a designation by showing knowledge of valuing property. As well, there are certain experience and education requirements set by the IRS. An individual must meet these to become a qualified appraiser. This helps them know the appraisal report requirements for the valuation of properties. 

If you make many contributions, you’ll likely have to file separate assessments. This is because there are outlined threshold requirements for qualified appraisals. With that said, there is an exception if you only make one single donation each tax year.

Deductions included in a qualified appraisal get itemized. The range of assets can vary, but can include:

• Property
• Collectibles
• Art
• Vehicles
• Financial securities

Qualified Appraisal Requirements

Typically, you need a qualified appraiser for donated property that’s more than $5,000. The appraisal must be signed and dated by a qualified appraiser. Taxpayers must complete and submit Form 8283, Section B, with their tax return.

For a qualified appraisal to meet IRS standards, make sure that:

• It’s made, dated, and signed by a qualified appraiser. They also need to meet the generally accepted appraisal standards.
• You meet the proper requirements outlined in the Regulations section 1.170A-17(a).
• It is not dated earlier than 60 days before you make the contribution. And no later than the date the contribution is made.
• You don’t include a prohibited appraisal fee.

Once you have all of these details in place, you must complete Form 8283, Section B, and attach it to your tax return. There isn’t a requirement to attach your qualified appraisal if the donation is less than $5,000. Just make sure you keep a copy in a safe place in case it’s needed at some point down the road.

There are four exceptions to when you include your qualified appraisal with a tax return. According to the IRS, you must include the qualified appraisal if:

• You claim a deduction for a donation or property that’s worth more than $500,000.
• You claim donations for art that total $20,000 or more.
• You claim a deduction for an easement or potential restriction on the exterior of a building located in a historic district.
• You claimed a deduction for clothing that totals $500 or more, or for a household item that’s not in good used condition or better.

No part of the fee arrangement can be based on a percentage of the property being appraised. If this happens, it gets treated as a percentage of the appraised value. As well, it can be a good idea to use a reputable appraisal company. 

Information to Include In a Qualified Appraisal

Qualified appraisals are going to include varying information depending on the property. Yet, there’s still information to include on any qualified appraisal.

According to the IRS, qualified appraisals must have the following information:

• A description of the property that includes more than enough details. This ensures the property being appraised is the property being contributed.
• The specific date or expected date of the property contribution.
• Details surrounding the physical condition of the property
• Any relevant terms outlined in an agreement or an understanding by—or on behalf of—the individual contributing to the property. This will include details about the sale, the use, or any other relevant details.
• The taxpayer identification number of the qualified appraiser, the name, and the address.
• The name, address, and taxpayer identification number of the person or partnership. This is if the qualified appraiser is an employee, a partner, or an independent contractor used by an individual other than the donor.
• All of the details surrounding the qualifications of the appraiser. This will include their experience, education, background, and if they are a member of a professional association.
• The actual date on which the property was valued.
• The appraised fair market value on the expected date or actual date of the property contribution.
• The actual method is used to help determine the fair market value of the property. This could be through a replacement cost minus depreciation approach. Or an income approach, a comparable market or sales data approach.
• Why the valuation is happening and the basis for the valuation itself, such as a sales transaction that’s comparable.

How Many Qualified Appraisals Do You Need to Complete?

You must include individual qualified appraisals for each piece of property you contribute. However, you only need to submit separate appraisals if the items in question aren’t part of a group of similar items.

When you complete a qualified appraisal for a group of items, you must include all of the required information for each individual one. Your qualified appraiser might use their discretion to include a group description for items that don’t have a total value that exceeds $100.

Valuation Methodologies by a Qualified Appraiser

Qualified appraisers are individuals that have earned the appropriate accreditation or certifications. As well, their previous experience and background are taken into consideration.

To meet the criteria for a qualified appraiser, the individual needs to:

• Have earned a recognized appraisal designation. This designation must be earned and received from a professional appraiser organization.
• Have a minimum of two or more years of experience and meet the education requirements. This means they must have successfully completed college or professional level coursework from:
  • A professional or college-level educational institution.
  • An employer that offers an education or apprentice program that’s similar to a professional or college-level course.
  • A professional appraiser or trade organization. The educational programs need to teach individuals how to properly value different types of property.

From here, qualified appraisers can use a few different approaches to help them evaluate property. They do this to calculate the value of an asset in an unbiased way. The most common are the comparison approach, the cost approach, and the income approach.

• The Comparison Approach — The appraiser values the property. This is based on similar properties and assets and recent selling price information.
• The Cost Approach — This is where the appraiser values the property based on an asset that’s equivalent. For example, they might look at a house and consider construction costs and the cost of land.
• The Income Approach — The appraiser values the property by looking at the amount of income it could generate. This is common in real estate and the main value would come from rent revenue after operating expenses.

Summary

Qualified appraisals are used when various properties and assets need to get valued in order to meet IRS requirements. The entire valuation process must get completed by a qualified appraiser. Qualified appraisers must meet the education and work experience requirements, as well.

There can be many reasons and purposes for a qualified appraisal. They can be common in taxation, disposition, insurance, and charitable donations, for example. If you make a large cash donation, qualified appraisals can help you claim tax deductions.

Qualified appraisals need to be done no earlier than 60 days before the property is donated up to the date of the contribution. Plus, there is generally a requirement to include a copy of your qualified appraisal with your tax return if the amount is $5,000 or more. If the amount is $5,000 or less, you don’t have to include a copy of the qualified appraisal unless it’s for certain household items and clothing.

Written by Jami Gong, MPAcc, CPA

Jami Gong is a Chartered Professional Account and Financial System Consultant. She holds a Masters Degree in Professional Accounting from the University of New South Wales. Her areas of expertise include accounting system and enterprise resource planning implementations, as well as accounting business process improvement and workflow design. Jami has collaborated with clients large and small in the technology, financial, and post-secondary fields.

Written by Jami Gong, MPAcc, CPA

Jami Gong is a Chartered Professional Account and Financial System Consultant. She holds a Masters Degree in Professional Accounting from the University of New South Wales. Her areas of expertise include accounting system and enterprise resource planning implementations, as well as accounting business process improvement and workflow design. Jami has collaborated with clients large and small in the technology, financial, and post-secondary fields.