From donating property to your alma mater to gifting a rare collection to your children, noncash gifts can be a meaningful way to support a cause, preserve family wealth, or reduce estate tax burdens.
But, unlike writing a check, donating or gifting valuable assets comes with extra steps. If you don’t properly document their value, the IRS could deny your deduction, challenge your tax return, or even impose penalties.
Why Appraisals Matter
An appraisal justifies the fair market value of a donated or gifted asset for tax purposes. This valuation is the backbone of your paperwork when claiming a charitable deduction or reporting gifts. Without solid documentation, the IRS could challenge your valuation for:
- Overstating the value: If the IRS determines that you’ve significantly exaggerated an asset’s worth, it can reduce or deny your deduction and impose a valuation misstatement penalty—which starts at 20% of the underpaid tax and can reach 40% in extreme cases.
- Understating the value: You might trigger penalties for underreporting. Some taxpayers intentionally undervalue gifted assets to reduce gift tax liability. However, if the IRS finds that the reported value is 65% or less of fair market value, it can impose penalties similar to those for overstatement.
Not all noncash gifts require an appraisal, but for high-value assets, the IRS has strict rules—whether you’re donating to charity (for a tax deduction) or gifting assets to family (for estate planning purposes).
Appraisal Requirements for Noncash Charitable Donations (Deductions)
If you’re donating property to a qualified charity and plan to deduct the value on your tax return, the IRS has clear documentation thresholds:
- $250 or more: A written acknowledgment from the charity is required, but no appraisal is needed.
- $500 or more: You must file IRS Form 8283, Section A, describing the donated asset.
- More than $5,000: A qualified appraisal is required, and you must complete Section B of Form 8283, which includes your appraiser’s signature.
- More than $20,000 (for artwork): You must attach a copy of the qualified appraisal to your tax return.
- More than $500,000: You must attach the full appraisal report to your tax return.
Publicly traded securities generally do not require an appraisal since their fair market value is easily verified. However, privately held business interests, real estate, and collectibles typically do.
Appraisal Requirements for Gifts to Family or Others (Gift Tax Rules)
If you’re gifting an asset to family, friends, or a trust, the IRS doesn’t allow you to deduct the value—but an appraisal is still necessary in many cases to determine gift tax liability.
- Gifts exceeding $19,000 (2025) per recipient: These count against your annual exclusion, but no appraisal is required unless challenged.
- Gifts exceeding your remaining lifetime exemption ($13.99 million in 2025): These may trigger gift tax, making a qualified appraisal critical to justify the valuation.
- Closely held business interests, real estate, or unique assets, no matter the value: The IRS often scrutinizes these, and undervaluation (to reduce gift tax) could result in penalties.
IRS Scrutiny and the Statute of Limitations
For gifts, the IRS typically has three years from the date you file a complete and properly disclosed gift tax return to audit the valuation of a gifted asset.
But the clock doesn’t start unless the gift is adequately disclosed. That means providing a thorough description of the asset, the method used to determine its value, and any supporting documentation—like a professional appraisal. If you skip this step or submit vague details, the IRS could argue that the statute of limitations (SOL) never started, keeping your gift open to challenge indefinitely.
For noncash charitable contributions, the IRS doesn’t necessarily follow the same strict three-year rule that applies to adequately disclosed gifts. While they generally have three years to audit a tax return, they can still challenge the valuation of a donated asset beyond that period if they later uncover fraud, substantial errors, or valuation misstatements. If the deduction was significantly overstated, the IRS may impose valuation misstatement penalties even years later. And in cases of fraud or willful misrepresentation, there is no statute of limitations, meaning the IRS can audit and challenge the deduction indefinitely.
For gifts, the three-year rule offers stronger protection if the gift is properly disclosed on Form 709. However, the IRS can extend the audit window to six years if they determine that more than 25% of total taxable gifts were omitted, and if a gift is never reported or is fraudulently undervalued, the IRS can challenge it at any time.
How to Stay Compliant
Avoiding these pitfalls is simple if you take the right steps upfront:
- Choose a qualified appraiser: The IRS doesn’t accept just any valuation—your appraiser must have knowledge in the specific type of asset you’re gifting. They should also have a professional appraiser designation or equivalent education and experience, no conflict of interest, and regular experience in valuing similar assets.
- Get the appraisal before filing your tax return: Don’t wait until the last minute. You need time to ensure everything is properly documented.
- Provide the required forms: Whether it’s an appraisal summary on Form 8283 (for donations) or properly documented valuations for gift tax reporting (Form 709), make sure your paperwork is complete.
- Keep detailed records: Maintain copies of all appraisals, tax filings, and correspondence related to your gifts or donations. If the IRS asks questions later, you’ll be prepared.
Planning Ahead
If you’re unsure whether your gifts require a formal appraisal—or need guidance on the best strategy for tax efficiency—contact Aldrich. A little due diligence now can save you a lot of stress (and money) later.
