Donating equipment to a charitable organization and other non-profits such as universities is a generous act that can provide significant benefits to both the donor and the recipient. However, to maximize the benefits of such a donation, it is important to understand when and why independent equipment appraisals will be required come tax time.
The IRS requires a determination of the market value of the items that are being donated. If the claimed value of the donated equipment exceeds $5,000, a qualified appraisal is required to substantiate the deduction.
First, determine if an appraisal is necessary based on discussions with your accountant and/or your own internal estimate of value. Then, research and select an accredited appraiser who is familiar with these types of valuations. The IRS requires that the appraisal be conducted by a qualified professional with experience in valuing machinery and equipment for donation purposes.
The valuation expert will request a copy of all information available regarding the purchase and usage history of the assets. The more detail available for the appraiser to review from your records, the more supportable and reliable the appraisal will be.
The appraiser will then complete their research and analysis and provide you with a detailed report that meets IRS standards, including detailed descriptions, methodologies, and approaches considered and relied upon. Fair Market Value is the standard definition used and accepted by the IRS. It represents a hypothetical arm’s length transaction with neither the buyer nor seller being under any compulsion to buy or sell and both fully knowledgeable of all relevant facts.
Once you are ready to file your taxes, you must complete IRS forms, including an 8283 (Noncash Charitable Contributions) when filing tax returns. For donations exceeding $5,000, the appraiser must sign Section B of Form 8283 to verify the valuation.
For your records, maintain the documentation as part of your tax file, including copies of the appraisal report, donation receipt from the charity, and any related correspondence. Ensure the charity provides a written acknowledgment of the donation.
In summary, equipment donations can be beneficial to both donors and their recipients. To maximize the tax benefits and ensure compliance with IRS regulations, seek professional appraisal services when necessary. Proper documentation and adherence to IRS guidelines will make the donation process smooth and rewarding. Before donating, consult with a tax professional to ensure compliance with the latest tax laws to optimize the benefits of your contribution.