Valuation of Various Kinds of Property
This section contains information on determining the FMV of
ordinary kinds of donated property. For information on appraisals, see
Appraisals, later.
Household Goods
The FMV of used household goods, such as furniture, appliances, and
linens, is usually much lower than the price paid when new. Such used
property may have little or no market value because of its worn
condition. It may be out of style or no longer useful.
If the property is valuable because it is old or unique, see the
discussion under Paintings, Antiques, and Other Objects of
Art.
Used Clothing
Used clothing and other personal items are usually worth far less
than the price you paid for them. Valuation of items of clothing does
not lend itself to fixed formulas or methods.
The price that buyers of used items actually pay in used clothing
stores, such as consignment or thrift shops, is an indication of the
value.
For valuable furs or very expensive gowns, an appraisal summary may
have to be sent with your tax return.
Jewelry and Gems
Jewelry and gems are of such a specialized nature that it is almost
always necessary to get an appraisal by a specialized jewelry
appraiser. The appraisal should describe, among other things, the
style of the jewelry, the cut and setting of the gem, and whether it
is now in fashion. If not in fashion, the possibility of having the
property redesigned, recut, or reset should be reported in the
appraisal. The stone's coloring, weight, cut, brilliance, and flaws
should be reported and analyzed. Sentimental personal value has no
effect on FMV. But if the jewelry was owned by a famous person, its
value might increase.
Paintings, Antiques, and Other Objects of Art
Your deduction for contributions of paintings, antiques, and other
objects of art, should be supported by a written appraisal from a
qualified and reputable source, unless the deduction is $5,000 or
less. Examples of information that should be included in appraisals of
art objects - paintings in particular - are found later under
Qualified Appraisal.
Art valued at $20,000 or more.
If you claim a deduction of $20,000 or more for donations of art,
you must attach a complete copy of the signed appraisal to your
return. For individual objects valued at $20,000 or more, a photograph
of a size and quality fully showing the object, preferably an 8 x 10
inch color photograph or a color transparency no smaller than 4 x 5
inches, must be provided upon request.
Art valued at $50,000 or more.
If you donate an item of art that has been appraised at $50,000 or
more, you can request a Statement of Value for that item
from the IRS. You must request the statement before filing the tax
return that reports the donation. Your request must include the
following:
- A copy of a qualified appraisal of the item (see
Qualified Appraisal, later.)
- A $2,500 check or money order payable to the Internal
Revenue Service for the user fee that applies to your request
regarding one, two, or three items of art (add $250 for each item in
excess of three).
- A completed appraisal summary (Section B of Form 8283,
Noncash Charitable Contributions.)
- The location of the IRS District Office that has examination
responsibility for your area.
If your request lacks essential information, you will be
notified and given 30 days to provide the missing information.
Refunds.
You can withdraw your request for a Statement of Value at any time
before it is issued. However, the IRS will not refund the user fee if
you do.
If the IRS declines to issue a Statement of Value in the interest
of efficient tax administration, the IRS will refund the user fee.
Authenticity.
The authenticity of the donated art must be determined by the
appraiser. Certificates of authenticity may be useful, but this
depends on the genuineness of the certificate and the qualifications
of the authenticator.
Physical condition.
Important items in the valuation of antiques and art are physical
condition and extent of restoration. These have a significant effect
on the value and must be fully reported in an appraisal. An antique
in damaged condition, or lacking the original brasses, may be
worth much less than a similar piece in excellent condition.
Art appraisers.
More weight will usually be given to an appraisal prepared by an
individual specializing in the kind and price range of the art being
appraised. Certain art dealers or appraisers specialize, for example,
in old masters, modern art, bronze sculpture, etc. Their opinions on
the authenticity and desirability of such art would usually be given
more weight than the opinions of more generalized art dealers or
appraisers. They can report more recent comparable sales to support
their opinion.
To identify and locate experts on unique, specialized items or
collections, you may wish to use the current Official Museum
Directory of the American Association of Museums. It lists
museums both by state and by category.
To help you locate a qualified appraiser for your donation, you may
wish to ask an art historian at a nearby college or the director or
curator of a local museum. The Yellow Pages often list specialized art
and antique dealers, auctioneers, and art appraisers. You may also
contact associations of dealers for guidance.
Collections
Since many kinds of hobby collections may be the subject of a
charitable donation, it is not possible to discuss all of the possible
collectibles in this publication. Most common are rare books,
autographs, manuscripts, stamps, coins, guns, phonograph records, and
natural history items. Many of the elements of valuation that apply to
paintings and other objects of art, discussed earlier, also apply to
miscellaneous collections.
Reference material.
Publications available to help you determine the value of many
kinds of collections include catalogs, dealers' price lists, and
specialized hobby periodicals. When using one of these price guides,
you must use the current edition at the date of contribution. However,
these sources are not always reliable indicators of FMV and should be
supported by other evidence.
For example, a dealer may sell an item for much less than is shown
on a price list, particularly after the item has remained unsold for a
long time. The price an item sold for in an auction may have been the
result of a rigged sale or a mere bidding duel. The appraiser must
analyze the reference material, and recognize and make adjustments for
misleading entries. If you are donating a valuable collection, you
should get an appraisal. If your donation appears to be of little
value, you may be able to make a satisfactory valuation using
reference materials available at a state, city, college, or museum
library.
Stamp collections.
Most libraries have catalogs or other books that report the
publisher's estimate of values. Generally, two price levels are shown
for each stamp: the price postmarked and the price not postmarked.
Stamp dealers generally know the value of their merchandise and are
able to prepare satisfactory appraisals of valuable collections.
Coin collections.
Many catalogs and other reference materials show the writer's or
publisher's opinion of the value of coins on or near the date of the
publication. Like many other collectors' items, the value of a coin
depends on the demand for it, its age, and its rarity. Another
important factor is the coin's condition. For example, there is a
great difference in the value of a coin that is in mint condition and
a similar coin that is only in good condition.
Catalogs usually establish a category for coins, based on their
physical condition - mint or uncirculated, extremely fine, very
fine, fine, very good, good, fair, or poor - with a different
valuation for each category.
Books.
The value of books is usually determined by selecting comparable
sales and adjusting the prices according to the differences between
the comparable sales and the item being evaluated. This is difficult
to do and, except for a collection of little value, should be done by
a specialized appraiser. Within the general category of literary
property, there are dealers who specialize in certain areas, such as
Americana, foreign imports, Bibles, and scientific books.
Modest value of collection.
If the collection you are donating is of modest value, not
requiring a written appraisal, the following information may help you
in determining the FMV.
A book that is very old, or very rare, is not necessarily valuable.
There are many books that are very old or rare, but that have little
or no market value.
Condition of book.
The condition of a book may have a great influence on its value.
Collectors are interested in items that are in fine, or at least good,
condition. When a book has a missing page, a loose binding, tears,
stains, or is otherwise in poor condition, its value is greatly
lowered.
Other factors.
Some other factors in the valuation of a book are the kind of
binding (leather, cloth, paper), page edges, and illustrations
(drawings and photographs). Collectors usually want first editions of
books. However, because of changes or additions, other editions are
sometimes worth as much as, or more than, the first edition.
Manuscripts, autographs, diaries, and similar items.
When these items are handwritten, or at least signed by famous
people, they are often in demand and are valuable. The writings of
unknowns also may be of value if they are of unusual historical or
literary importance. Determining the value of such material is
difficult. For example, there may be a great difference in value
between two diaries that were kept by a famous person - one kept
during childhood and the other during a later period in his or her
life. The appraiser determines a value in these cases by applying
knowledge and judgment to such factors as comparable sales and
conditions.
Signatures.
Signatures, or sets of signatures, that were cut from letters or
other papers usually have little or no value. But complete sets of the
signatures of U.S. presidents are in demand.
Cars, Boats, and Aircraft
If you donate a car, a boat, or an aircraft to a charitable
organization, its FMV must be determined.
Certain commercial firms and trade organizations publish monthly or
seasonal guides for different regions of the country, containing
complete dealer sale prices or dealer-average prices for recent model
years. Prices are reported for each make, model, and year of used car,
aircraft, truck, recreational vehicle, and boat. These guides also
provide estimates for adjusting for unusual equipment, unusual
mileage, and physical condition. The prices are not official,
and these publications are not considered an appraisal of any specific
donated property. But they do provide clues for making an appraisal
and suggest relative prices for comparison with current sales and
offerings in your area.
These publications are sometimes available at a bank, credit union,
or finance company.
Except for inexpensive small boats, the valuation of boats should
be based on an appraisal by a marine surveyor because the physical
condition is so critical to the value.
Example.
You donate your car to a local high school for use by students
studying automobile repair. Your credit union told you that the
blue book value of a car like yours is $1,600 in good
condition. However, your car needs extensive repairs. After checking
with repair shops and used car dealers, you find that the car should
sell for $750. You may use $750 as the FMV of the car.
Inventory
If you donate any inventory item to a charitable organization, the
amount of your deductible contribution is the FMV of the item, less
any gain you would have realized if you had sold the item at its FMV
on the date of the gift. For more information, see Charitable
contributions in Chapter 16 of Publication 535, Business
Expenses.
Stocks and Bonds
The value of stocks and bonds is the FMV of a share or bond on the
valuation date. See Date of contribution, earlier, under
What Is Fair Market Value (FMV)?
Selling prices on valuation date.
If there is an active market for the contributed stocks or bonds on
a stock exchange, in an over-the-counter market, or elsewhere, the FMV
of each share or bond is the average price between the highest and
lowest quoted selling prices on the valuation date. For example, if
the highest selling price for a share was $11, and the lowest $9, the
average price is $10. You get the average price by adding $11 and $9
and dividing the sum by 2.
No sales on valuation date.
If there were no sales on the valuation date, but there were sales
within a reasonable period before and after the valuation date, you
determine FMV by taking the average price between the highest and
lowest sales prices on the nearest date before and on the nearest date
after the valuation date. Then you weight these averages in
inverse order by the respective number of trading days
between the selling dates and the valuation date.
Example.
On the day you gave stock to a qualified organization, there were
no sales of the stock. Sales of the stock nearest the valuation date
took place two trading days before the valuation date at an average
selling price of $10 and three trading days after the valuation date
at an average selling price of $15. The FMV on the valuation date was
$12, figured as follows:
[(3 x $10) + (2 x
$15)] ÷ 5 = 12
Listings on more than one stock exchange.
Stocks or bonds listed on more than one stock exchange are valued
based on the prices of the exchange on which they are principally
dealt. This applies if these prices are published in a generally
available listing or publication of general circulation. If this is
not applicable, and the stocks or bonds are reported on a composite
listing of combined exchanges in a publication of general circulation,
use the composite list. See also Unavailable prices or closely
held corporation, later.
Bid and asked prices on valuation date.
If there were no sales within a reasonable period before and after
the valuation date, the FMV is the average price between the bona fide
bid and asked prices on the valuation date.
Example.
Although there were no sales of Blue Corporation stock on the
valuation date, bona fide bid and asked prices were available on that
date of $14 and $16, respectively. The FMV is $15, the average price
between the bid and asked prices.
No prices on valuation date.
If there were no prices available on the valuation date, you
determine FMV by taking the average prices between the bona fide bid
and asked prices on the closest trading date before and after the
valuation date. Both dates must be within a reasonable period. Then
you weight these averages in inverse order by the
respective number of trading days between the bid and asked dates and
the valuation date.
Prices only before or after valuation date, but not both.
If no selling prices or bona fide bid and asked prices are
available on a date within a reasonable period before the valuation
date, but are available on a date within a reasonable period after the
valuation date, or vice versa, then the average price between the
highest and lowest of such available prices may be treated as the
value.
Large blocks of stock.
When a large block of stock is put on the market, it may lower the
selling price of the stock if the supply is greater than the demand.
On the other hand, market forces may exist that will afford higher
prices for large blocks of stock. Because of the many factors to be
considered, determining the value of large blocks of stock usually
requires the help of experts specializing in underwriting large
quantities of securities, or in trading in the securities of the
industry of which the particular company is a part.
Unavailable prices or closely held corporation.
If selling prices or bid and asked prices are not available, or if
securities of a closely held corporation are involved, determine the
FMV by considering the following factors:
- For bonds, the soundness of the security, the interest
yield, the date of maturity, and other relevant factors.
- For shares of stock, the company's net worth, prospective
earning power and dividend-paying capacity, and other relevant
factors.
Other factors.
Other relevant factors include the goodwill of the business, the
economic outlook in the particular industry, the company's position in
the industry and its management, and the value of securities of
corporations engaged in the same or similar business. For preferred
stock, the most important factors are its yield, dividend coverage,
and protection of its liquidation preference.
You should keep complete financial and other information on which
the valuation is based. This includes copies of reports of
examinations of the company made by accountants, engineers, or any
technical experts on or close to the valuation date.
Restricted securities.
Some classes of stock cannot be traded publicly because of
restrictions imposed by the Securities and Exchange Commission, or by
the corporate charter or a trust agreement. These restricted
securities usually trade at a discount in relation to freely traded
securities.
To arrive at the FMV of restricted securities, factors that you
must consider include the resale provisions found in the restriction
agreements, the relative negotiating strengths of the buyer and
seller, and the market experience of freely traded securities of the
same class as the restricted securities.
Real Estate
Because each piece of real estate is unique and its valuation is
complicated, a detailed appraisal by a professional appraiser is
necessary.
The appraiser must be thoroughly trained in the application of
appraisal principles and theory. In some instances the opinions of
equally qualified appraisers may carry unequal weight, such as when
one appraiser has a better knowledge of local conditions.
The appraisal report must contain a complete description of the
property, such as street address, legal description, and lot and block
number, as well as physical features, condition, and dimensions. The
use to which the property is put, zoning and permitted uses, and its
potential use for other higher and better uses are also relevant.
In general, there are three main approaches to the valuation of
real estate. An appraisal may require the combined use of two or three
methods rather than one method only.
1. Comparable Sales
The comparable sales method compares the donated property with
several similar properties that have been sold. The selling prices,
after adjustments for differences in date of sale, size, condition,
and location, would then indicate the estimated FMV of the donated
property.
If the comparable sales method is used to determine the value of
unimproved real property (land without significant
buildings, structures, or any other improvements that add to its
value), the appraiser should consider the following factors when
comparing the potential comparable property and the donated property:
- Location, size, and zoning or use restrictions,
- Accessibility and road frontage, and available utilities and
water rights,
- Riparian rights (right of access to and use of the water by
owners of land on the bank of a river) and existing easements,
rights-of-way, leases, etc.,
- Soil characteristics, vegetative cover, and status of
mineral rights, and
- Other factors affecting value.
For each comparable sale, the appraisal must include the names of
the buyer and seller, the deed book and page number, the date of sale
and selling price, a property description, the amount and terms of
mortgages, property surveys, the assessed value, the tax rate, and the
assessor's appraised FMV.
The comparable selling prices must be adjusted to account for
differences between the sale property and the donated property.
Because differences of opinion may arise between appraisers as to the
degree of comparability and the amount of the adjustment considered
necessary for comparison purposes, an appraiser should document each
item of adjustment.
Only comparable sales having the least adjustments in terms of
items and/or total dollar adjustments should be considered as
comparable to the donated property.
2. Capitalization of Income
This method capitalizes the net income from the property at a rate
that represents a fair return on the particular investment at the
particular time, considering the risks involved. The key elements are
the determination of the income to be capitalized and the rate of
capitalization.
3. Replacement Cost New or Reproduction Cost Minus
Observed Depreciation
This method, used alone, usually does not result in a determination
of FMV. Instead, it generally tends to set the upper limit of value,
particularly in periods of rising costs, because it is reasonable to
assume that an informed buyer will not pay more for the real estate
than it would cost to reproduce a similar property. Of course, this
reasoning does not apply if a similar property cannot be created
because of location, unusual construction, or some other reason.
Generally, this method serves to support the value determined from
other methods. When the replacement cost method is applied to
improved realty, the land and improvements are valued
separately.
The replacement cost of a building is figured by considering the
materials, the quality of workmanship, and the number of square feet
or cubic feet in the building. This cost represents the total cost of
labor and material, overhead, and profit. After the replacement cost
has been figured, consideration must be given to the following
factors:
- Physical deterioration - the wear and tear on the
building itself,
- Functional obsolescence - usually in older buildings
with, for example, inadequate lighting, plumbing, or heating, small
rooms, or a poor floor plan, and
- Economic obsolescence - outside forces causing the whole
area to become less desirable.
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