Equipment Appraisal Blog | Understanding Machinery Appraisals

Determining Depreciation and Useful Life for Machinery & Equipment

Posted by Equipment Appraisal Services on Mon, Dec 28, 2020 @ 08:00 AM

Appraisers Depreciation Useful Life

When appraisers look at variables in an equipment valuation, two of the key factors taken into account are useful life and depreciation. Though the process may seem straightforward, machinery & equipment appraisers look at different characteristics that assist in determining useful life and depreciation within the current market. This differs from the prescribed approach a certified accountant takes.

Accounting Methodology of Determining Depreciation and Useful life

When it comes to capitalized machinery & equipment on a company’s books, accountants treat depreciation and useful life according to accepted principles. One such principle is the Modified Accelerated Cost Recovery System (MACRS). This method is based around a uniform, straight line reduction in value, or depreciation, which starts with the acquisition price of the equipment and amortizes that price, or initial value, equally over a standardized term, usually five to seven years. The endpoint of the depreciation is typically zero.

An Appraiser’s Market Driven Methodology of Determining Depreciation and Useful Life

When appraisers value machinery & equipment, they research the market to find as much information as reasonably possible to estimate its current value. Depreciation and useful life are two components of this analysis, and can be determined through relevant third party sources that buy, sell and utilize the type of assets being appraised. This is a direct market derived approach to understanding these variables more in tune with the reality of how they are valued over time and how long they can reasonably be expected to operate effectively before needing major rebuilds/overhauls or retire from service entirely.

It is important to understand these factors and take them into account as part of a complete market analysis which will also include reviewing comparable sales of the equipment being appraised. Market comparable data can oftentimes be limited or inconsistent across different sources and a balanced understanding of market depreciation and useful life can complement this data and provide reasonableness checks to the comparable sales.

Developing Market Depreciation Curves for Asset Classes of Machinery & Equipment

Once an appraiser has completed a number of valuations in specific markets and industries, they can consider creating a database of values which results in the development of market driven depreciation curves that will further serve as a reasonable source of historical data to consider on future valuations. This would be similar to the concept of subscription databases that are publicly available in certain markets such as construction, automotive and over the road transportation in today’s resource networks.

In summary, when your business needs an updated true market assessment of value for their capital assets, always look to an accredited equipment appraiser to complete the assignment.

Tags: understanding fair market value, depreciation of equipment, equipment valuation, market value, useful life

Making an Equipment Donation? Use an Accredited Equipment Appraiser!

Posted by Equipment Appraisal Services on Mon, Dec 14, 2020 @ 08:00 AM

Equipment Donation Appraisal

When you are considering donating equipment for tax purposes, no matter how much or how little you can afford to give, it usually goes toward a worthy cause and makes you feel good in the process. Many people donate cash while others choose to make a donation of property or equipment.

While giving is its own reward, the IRS also rewards those who make charitable contributions to qualified organizations. As long as you meet certain guidelines and follow basic rules, you will be able to take a deduction on your tax return for the fair market value of your donation.

Claiming a Deduction for Donated Equipment or Machinery

Individuals, partnerships, and corporations are all eligible to claim a tax deduction on their tax return for donated property such as machinery & equipment. If you donate these tangible assets, and believe the value will be in excess of $500, you are required to fill out IRS Form 8283 (Non-Cash Charitable Deductions). On donations above $500, but no more than $5,000, you need to fill out Section A of Form 8283 but likely will not need to provide an equipment appraisal supporting the value. For donations where the value exceeds $5,000, you are required to fill out Section B of Form 8283 and you will need to provide an appraisal.

The IRS does not necessarily think everyone will overstate the value of their donation so they can claim a bigger deduction, but they must be able to document larger transactions using a reasonable process of independently valuing the property. The IRS generally does not question donations under $500, but you should keep records/receipts of all charitable gifts just in case they do. An equipment and machinery appraisal is required on more highly-valued items because the potential to overstate can materially reduce the amount of revenue the agency receives. 

In most cases where you need an appraisal, you do not need to attach it to Form 8283 and submit it with your return. An exception would be if your claimed donation is over $500,000. Keep the appraisal in your records just in case the IRS questions the amount of the claimed deduction.

Who is a Qualified Appraiser?

Equipment value established by an accredited equipment appraiser is more likely to be accepted as accurate by the IRS. An accredited equipment appraiser has the experience, education, and ability to perform an equipment & machinery valuation by following generally accepted appraisal standards. Accredited equipment appraisers are so designated by the American Society of Appraisers (ASA) and are compliant with the Uniform Standards of Professional Appraisal Practice (USPAP).

In summary, do not try to save a few dollars by hiring the cheapest appraiser you can find. You should always look for an accredited equipment appraiser who has the credentials to complete a supportable assessment of your donated equipment values. Using an appraisal company that only hires accredited appraisers is the best way to assure you will receive the best bang for your buck and feel confident that you're receiving the most benefit from donation.

Tags: Equipment Appraisal, donation appraisal, equipment donations