Qualified Appraisal FAQ
- Q: Why do I need a qualified appraisal?
- A: Giving up the life interest or lead trust remainder interest in an existing planned gift can be a great gift to charity earning the donor an additional charitable deduction. The IRS requires a qualified appraisal for non-cash gifts where the charitable deduction is over $5,000. Even though the planned gift was originally made with or may now be invested in cash or publicly traded securities for which no appraisal would be required for a new planned gift, the life interest or lead trust remainder interest in an existing planned gift is not itself a publicly traded security. Failure to obtain a qualified appraisal and attach an IRS Form 8283 appraisal summary to the tax return claiming the charitable deduction can result in denial of the deduction.
- Q: What do I get for my appraisal fee?
- A: The appraisal package from PG Calc will include an appraisal letter, a Non-Charitable-Interest Actuarials chart, an IRS Form 8283 completed and signed by PG Calc, a Deduction for Gift Annuity Termination chart, for a charitable gift annuity, and an Applicable Mid-Term Rate Election statement, if the IRS discount rate for one of the two months prior to the date of termination is being elected.
- Q: How long does it take for PG Calc to process an appraisal?
- A: You should allow 5 to 7 business days from when we receive the complete documentation, and we’ll let you know at the time of receipt if it might take longer due to scheduling issues. If you are running up against the April 15 tax filing deadline, you should consider putting your tax return on extension.
Unlike a real estate gift, where it is common to get the appraisal before making the gift, we ordinarily perform the appraisal only after the planned gift has been assigned or terminated, as we want to review the complete documentation including final values in making the appraisal. We do need all documentation before we begin work.
If you are still considering whether to assign or terminate the planned gift in favor of the charity and want a preliminary calculation as to what the life interest or lead trust remainder value would be, which can be useful in determining whether deduction is over the $5,000 threshold and for other planning decisions, we are happy to provide that to appraisal clients by phone or email. Often the charity can perform that calculation for you.
- Q: Can PG Calc appraise real estate, life insurance, businesses, or non-publicly-traded securities?
- A: No. If the planned gift being assigned or terminated involves real estate (such as a home or farm in a retained life estate), life insurance contracts, closely-held business interests, or non-publicly-traded securities that need to be appraised, you will need to find an appraiser qualified to value that type of property. If the appraiser is not qualified in also appraising the life interest or lead trust remainder interest, you may still want to engage PG Calc for that part. In that case, you will need to give consideration as to which appraiser or both will sign the Form 8283 and provide PG Calc the other appraisal.
- Q: Will my deduction be for the full value of my planned gift?
- A: Your gift is not the full amount in the trust or fund or otherwise held at the charitable organization, but rather the value of the life interest (or lead trust remainder interest) you are transferring to the charity as part of the assignment or termination. This value will be a percentage of the full value determined using actuarial formulas pursuant to IRS regulations.
For a charitable gift annuity, it is our interpretation that the charitable deduction on termination is limited to the lesser of the appraised value of the life estate or the unrecovered tax-free portion of the investment in contract plus unreported long term capital gain. The appraisal will be prepared on that basis unless otherwise requested.
For a pooled income fund, the highest rate of return for the last 3 years determined under the IRS regulations is used to perform the valuation. For other gift types, in the absence of instructions otherwise, PG Calc will use the IRS discount rate for the month of termination or the two prior months that produces the highest appraised value.
- Q: What is my cost basis for IRS Form 8283 Section B Part I column 5(f)?
- A: For a gift annuity, we will enter your unrecovered investment in contract as provided by you or determined from the Deduction for Gift Annuity Termination chart.
For a charitable remainder trust, pooled income fund, or retained life estate, unless you inform us otherwise, we will assume the cost basis is $0 pursuant to section 1001(e)(1) of the Internal Revenue Code regarding the determination of gain or loss from the sale or other disposition of a term interest in property.
For a charitable lead trust, you will need to determine and provide us the cost basis for the remainder interest.
- Q: How do I coordinate signing the IRS Form 8283?
- A: PG Calc will prepare Form 8283 Section B Part I, Information on Donated Property and will sign Section B Part III, Declaration of Appraiser. The donee charitable organization will also need to sign Section B Part IV, Donee Acknowledgment. The donor will need to obtain that signature, but if that has been arranged with the correct contact person at the charitable organization, we can send the Form 8283 directly to the charitable organization with a request they sign and forward to the donor.