The criticality of qualifying deconstruction contractors was explained in the previous installment of this three-part series. Here, I’ll explain why it is just as critical, if not more so, to qualify both the nonprofit organization (donee) and the appraiser in order to claim the highest tax deduction for your salvaged building materials.
Nonprofit Organizations
Any nonprofit with a 501(c)3 designation can receive in-kind donations—the nonmonetary kind, such as art, books, clothing, furniture and, yes, salvaged building materials. These nonprofits include organizations dedicated to religious, educational, safety and environmental purposes. The defined purpose of an organization can exempt them from federal and state income taxes. That purpose must be clearly stated on IRS form 1023 “Application for Recognition of Exemption,” which is required by the IRS before exemption is granted. The exempt purpose is often referred to as a mission statement.
Just because a 501(c)3 exempt organization can receive salvaged building materials, and provide the donor with a tax-deductible donation receipt, does not guarantee that the donor will benefit from the appraised donation value. If the exempt purpose (mission) of the donee is not to accept, use, and/or distribute used building materials, the organization must annually file form 8282 with the IRS. This form itemizes the actual revenue the organization received from the sale of the materials in question. Based on this information, the IRS has the right to adjust the donor’s donation from the appraised value to the sales-receipt value (usually lower), which increases the donor’s tax liability.
The key to obtaining the highest donation value is knowing that the donated building materials will be used in accordance with the organization’s exempt purpose. My advice? Always request a copy of the donee’s form 1023 (Application for Recognition of Exemptions) prior to making a substantial in-kind donation.
Appraisers
Any in-kind donation worth over $5,000 requires the services of an independent third-party qualified appraiser. Among other things, the word, “independent” indicates that neither the nonprofit nor the contractor has recommended any single appraiser.
Many appraisers limit their practice to either real-property or personal property, but some do both. Salvaged building materials are personal property, not real property. They have been severed from the building in reusable condition and must be appraised as personal property. Therefore, the first qualifying step is to ensure that you have chosen a personal property appraiser. However, several additional qualifying steps are important for tax-deduction purposes.
The individual appraiser has: a) earned an appraisal designation from a generally recognized professional appraiser organization; or b) has successfully completed professional or college-level coursework through an educational or appraiser organization that regularly offers programs in valuing the type of property in question; or c) has obtained the appraiser designation as part of an apprenticeship or education program similar to professional or college-level coursework.
An appraiser who has been qualified to appraise furniture is not thereby qualified to appraise art. One who has become qualified in coin collections is not qualified to appraise machinery as well. Valuing used building materials is a very specialized skill, so this type of appraiser must have a background in construction, architecture, construction estimating or something similar. Further, simply doing appraisals on one’s own does not satisfy the qualification requirements. If an appraiser claims to have received apprenticeship training under a qualified appraiser, you should contact the qualifier for verification.
Generally recognized professional appraiser organizations are typically membership organizations dependent upon member dues for their existence. They are not enforcement agencies and are usually unwilling to “eat their own.” So, while these organizations are a good place to start, do not rely on them to weed out appraisers who falsely claim to obtain the highest tax deductions for their clients.
Always ask the appraiser to show you the recently completed appraisal report of a similar client—one who made a tax-deductible donation of used building materials. When examining the report, watch out for fluff, such as sale prices of houses or other non pertinent information. Don’t forget to visit the websites of candidate appraisers to ascertain their qualifications for your type of personal property. Ask for company and individual resumes and review them for more specific qualifying information.
