Transferring valuable assets—whether to family, a charity, or an institution—can help preserve wealth, support meaningful causes, or reduce estate tax burdens. However, these noncash gifts require more than just generosity. The IRS appraisal requirements for noncash gifts ensure that assets receive proper valuation and tax treatment.

Unlike writing a check, donating or gifting valuable assets involves additional steps. Failing to document their value properly could lead the IRS to deny your deduction, challenge your tax return, or impose penalties.

A professional appraisal isn’t just a formality—it serves as your strongest defense against IRS scrutiny and ensures your generosity delivers the intended financial benefits.

Why Appraisals Matter

An appraisal establishes the fair market value of a donated or gifted asset for tax purposes. This valuation plays a crucial role in supporting your claim when reporting gifts or seeking charitable deductions.

Without proper documentation, the IRS may challenge your valuation in two ways:

• Overstating a donation’s value: Inflated deductions can trigger IRS penalties. If the IRS finds that an asset’s value was significantly exaggerated, it may reduce or deny your deduction and impose a valuation misstatement penalty—starting at 20% of the underpaid tax and reaching up to 40% in extreme cases.
• Understating a gift’s value: Some taxpayers intentionally undervalue gifted assets to lower their gift tax liability. If the IRS determines that the reported value is 65% or less of fair market value, it may impose penalties similar to those for overstatements.

In either case, a proper appraisal ensures that you claim the correct tax benefits while avoiding unnecessary IRS scrutiny.

When the IRS Requires an Appraisal

Not all noncash gifts require an appraisal, but high-value assets fall under strict IRS guidelines—whether for charitable donations (to claim a deduction) or estate planning (to transfer assets to family). The IRS appraisal requirements for noncash gifts outline when and how appraisals must be conducted.

Appraisal Requirements for Noncash Charitable Donations

If you donate property to a qualified charity and plan to deduct the value on your tax return, the IRS enforces specific documentation thresholds:

• $250 or more – Requires a written acknowledgment from the charity, but no appraisal.
• $500 or more – Requires filing IRS Form 8283, Section A, which describes the donated asset.
• More than $5,000 – Requires a qualified appraisal and completion of Section B of Form 8283, which includes your appraiser’s signature.
• More than $20,000 (for artwork) – Requires attaching a copy of the appraisal to your tax return.
• More than $500,000 – Requires attaching 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.

Ignoring these IRS appraisal requirements for noncash gifts can lead to disallowed deductions and potential tax penalties.

Appraisal Requirements for Gift Tax Compliance

The IRS does not allow a deduction for gifts of assets to family, friends, or a trust. However, an appraisal remains essential in many cases to determine gift tax liability.

• Gifts exceeding $19,000 per recipient (2025) – Count against your annual exclusion but require no appraisal unless challenged.
• Gifts exceeding your lifetime exemption ($13.99 million in 2025) – This may trigger gift tax, making a qualified appraisal necessary.
• Closely held business interests, real estate, or unique assets – The IRS often scrutinizes these transactions, and undervaluing them to reduce gift tax can result in penalties.

By following the IRS appraisal requirements for noncash gifts, taxpayers can ensure they properly report gift values and avoid unnecessary penalties.

IRS Scrutiny and the Statute of Limitations

For gifts, the IRS typically has three years from the date you file a properly disclosed gift tax return to audit the valuation.

However, this statute of limitations only applies if the gift is adequately disclosed on Form 709. This means providing:

• A detailed asset description
• The valuation method used
• Any supporting documentation, such as a professional appraisal

Failing to submit this information could allow the IRS to argue that the statute of limitations never began, leaving your gift open to challenge indefinitely.

For noncash charitable contributions, the IRS may extend the audit period beyond three years if it uncovers fraud, substantial errors, or valuation misstatements. In cases of willful misrepresentation, there is no statute of limitations—allowing the IRS to challenge deductions indefinitely.

Proper documentation ensures compliance and limits future IRS scrutiny.

How to Stay Compliant

Avoiding tax penalties is simple if you take the right steps upfront:

• Work with a qualified appraiser. The IRS requires an appraiser to have expertise in the specific asset type, a professional designation or equivalent experience, and no conflict of interest.
• Get the appraisal before filing your tax return. Waiting too long may lead to incomplete documentation and potential issues.
• Attach the required forms. Whether it’s an appraisal summary on Form 8283 (for donations) or documented valuations for gift tax reporting (Form 709), proper filing is essential.
• Maintain detailed records. Keep copies of appraisals, tax filings, and correspondence related to your gifts or donations. If the IRS asks for details later, you’ll be prepared.

Planning Ahead

IRS penalties for improper valuations can be costly and time-consuming, but they are entirely avoidable. If you plan to make substantial noncash gifts or donations, following the IRS appraisal requirements for noncash gifts ensures compliance and maximizes tax efficiency.

Working with a qualified appraiser and adhering to IRS guidelines minimizes risks and protects your financial interests.

If you’re unsure whether your gifts require a formal appraisal or need guidance on the best tax strategy, contact our office. A little due diligence now can save significant stress—and money—later.