Equipment Appraisal Blog | Understanding Machinery Appraisals

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.

We see many instances where business owners and individuals no longer need to operate used machinery or have recently acquired older equipment and personal property as part of a larger purchase or estate settlement. In any of these cases, the assets are no longer useful, and there becomes a need to decide the best option for transferring ownership.

The first thought is usually determining the ability to sell or liquidate the assets; however, this process may be difficult, especially if demand is limited or the owner is unfamiliar with the potential resale markets. As an alternative, donating the property to a local business, university, training school, or non-profit organization might be a better choice. The benefits of a tax deduction and supporting your community or alma mater might outweigh the uncertainty and time-consuming process of trying to sell the items on your own.

Before you decide which options are best, it is a good idea to consult with your accountant as well as an accredited professional appraiser, especially if you know the total value of the donation will be significant. The IRS rule is that an independent appraisal is required as part of any deduction claim in excess of $5,000. You must also include Form 8283 as part of your income tax filing. The form needs to be signed by you, the appraiser, and the party you are donating to.

The cost of the appraisal can sometimes become a challenge in comparison to the tax benefit. For example, suppose you have dozens of small items that are being donated together, and all need to be appraised. In that case, the total value might not support the cost given the valuation process will be time-consuming. You need to broadly calculate your expected tax deduction by approximating the total value of your donation and multiplying it by your estimated adjusted income tax percentage.

As an example, a $50,000 donation would result in a $10,000 deduction for someone in the 20% tax bracket. If the appraisal costs $5,000, you will end up with a $5,000 overall benefit for the donation. A lower overall value for your donation will create a more price-sensitive situation regarding the appraisal cost, and vice versa.

It is important to review and discuss these scenarios with your accountant and the appraiser to try and create an affordable option that makes sense for you. Grouping together some of the less expensive items for the purpose of valuing them might be one viable way to save on the time and cost of completing the appraisal. The focus can then be placed on the higher-valued property for the purpose of detailing and itemizing the report.

When your business is looking to acquire new equipment, one of the primary reasons that necessitate this is the need to replace older machinery and upgrade your company’s production capabilities. Your first instinct may be to trade in or resell your used assets, however, another effective option is to donate them to a local non-profit, such as a public school/university, hospital, research institute, charity, museum, or other tax-exempt organization.

Consider researching options locally or contact your old schools to see if they would be interested in acquiring the used equipment which they might utilize directly or be able to refer you to a facility they know might have an interest.

The benefits to this type of transaction are not only from an income tax deduction perspective but you can also provide goodwill for your business. You may also be helping another facility and the individuals they support by providing items they might not be able to afford otherwise. Scientific, medical, and technical research and education at the high school and college levels are areas that usually need resources to maintain and grow their foundations.

Before physically donating, make sure you check that the equipment is in good working order while cleaning it up and creating an itemized list of what you will be providing to the non-profit organization. This list will come in handy when filing your taxes as well.

If you know the overall value of your donated machinery will exceed $5,000, you will be required to obtain an appraisal to support the higher claim. The advantage you have here is that the price level will be measured at fair market value, which is very likely higher than any trade-in or resale price you might get from an equipment dealer if you tried to sell on your own.

>Look to engage with an experienced accredited appraiser who is familiar with the type of assets you are donating. Donation valuations are very common for equipment appraisers, and they can provide the support needed to ensure you receive a reasonable assessment of value.

Once the appraisal is completed, you will need to fill out an IRS form 8283 for noncash donations and have the appraiser review and attest to the reported value. You can submit this as part of your overall tax return.

Donations can also be completed for unused inventory such as spare parts and tooling. Companies that produce excess finished goods can also donate these items using the same process. Equipment appraisers with experience in valuing inventory can work with you on these types of donations as well. In summary, before you decide to resell your used machinery when replacing them with newer models, consider a donation as a more effective alternative.

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.

When you're trying to help out a community organization or charity, a donation of equipment can be a great way to help fill their coffers or provide them with equipment that moves their mission forward. However, when it comes time to deal with finances and taxes, sometimes you need to have a bit more paperwork available than a receipt from the organization in question to document value. During those times, a donation appraisal is often the best way to verify value and provide documentation for tax agencies to back up that value. Here's a quick overview of how the donation valuation process works and in what situations it's most necessary.

How does a donation appraisal work and how can it benefit your finances?

With the changes that have happened recently in the tax code and new tax reform bill, many businesses are concerned about how their donations to charities will work out financially in the future. Fortunately, many of the issues surrounding donations are still somewhat similar to past years. However, if you're considering trying the new tactic of bunching your donation of a large value of equipment into a single year and then coasting through the next several years before your next donation, you'll need to make sure you're able to solidly document the value of your equipment.

But what about tax agencies? If the equipment you're donating is $5,000 or more in value, the IRS requires that you have an appropriate appraisal performed to document the value. What's considered an appropriate or qualified appraisal? Most tax agencies, not just the IRS, will happily accept an equipment appraisal that is performed by a certified appraiser. Why? Because this type of appraisal uses a set of standardized methodologies that have already been tested in a wide range of situations. This means that they've been perfected into methodologies that are accepted by tax agencies, financial institutions, legal circles and insurance companies.

What if you have already donated the equipment during this past year in anticipation of the new tax laws? If you didn't have the opportunity to have the machinery appraised at the time, it's not too late to have an appraisal performed. The methodologies that were mentioned earlier include developing calculations that work well for past values. These values have been used in a wide range of other situations, including insurance losses due to natural disasters, changing market conditions and similar situations. This allows a certified equipment appraiser to look back through time to the situation and conditions under which the donations took place as well as any mitigating circumstances such as cost of removing the equipment from your facility and who bore the burden of that expense.

If the machinery you're donating has a value anywhere near where the cutoffs for the tax agencies you're dealing with, a donation appraisal is a vital part of the process. Fortunately, when you're working with a certified equipment appraiser, you can even have the equipment you've already donated appraised as of the date of its donation, making it easier to deal with tax agency issues that you may have missed at the time of the donation. Working with a certified appraiser ensures that the methodology used in calculating value will be accepted by tax agencies and courts of law if necessary.