Tax-prep step: nailing down 'worth'
Understanding the fine art of getting your real estate and objects appraised
Another April 15 approaches, another busy time for tax accountants and appraisers.
While these professionals are essential when it comes to buying and selling real estate (see story, next page), they are often needed by people who inherit large sums or donate expensive gifts to libraries or museums.
Estate appraisals provide the basis for value when filing inheritance taxes. And since 1985, donors to charitable institutions are required to include a valid appraisal on their tax returns under certain circumstances: when the gift is an object valued at $5,000 or more, or when a stock is valued over $10,000.
Getting it done right
An estimated 125,000 appraisers work in the United States, with all kinds of specialities. Most work on an hourly basis, charging between $40 and $200 an hour, and they may require at least two hours' work. Travel time and research can lead to additional charges.
Most appraisers are generalists, known as estate appraisers, who will give ballpark estimates on everything in one's home.
Those who specialize in a particular area, such as antiques, coins, or Japanese prints, are on the higher end of the fee structure. At times, estate appraisers may call in specialists.
Appraisals, at times, lead to contention between individuals and the government.
If the IRS finds an object's appraised value to be off by 150 percent or more, it assesses a 30 percent penalty in addition to the payment of the adjusted tax and interest.
Also, the guilty appraiser may be barred from ever again preparing an appraisal for tax purposes, and could face a malpractice suit by the taxpayer.
"There have been abuses in a lot of areas," says Karen Carolan, chairwoman of the Art Advisory Panel of the IRS. The panel was set up in 1968 to help the government determine whether appraisals of fine- and decorative-art pieces are reasonable.
Finding the 'right' value
Disputes can also arise because different values for the same objects may be proffered for different reasons. Values in an estate tend to be on the low side to reduce taxes, while charitable gifts are usually appraised at optimal dollar amounts to increase tax deductions.
"Some appraisers say that there is only one appraisal value, and that is what the object would bring if sold on the market today," says Richard Raymond, an estate appraiser and owner of Richard Raymond Antiques in Ware, Mass.
He goes on to say that, in reality, the estimation of an object is much more circumstantial.
"If you want to transfer assets out of an estate, such as in a donation to a museum, you have to determine what it would cost if the museum went out and tried to buy this same or similar object. Then, you would give the object a higher value.
"However, if you tried to sell the same object to the museum, the question becomes what could you get for it," Mr. Raymond says.
"Then, you would likely give the object a much lower value," he adds. "This drives the IRS crazy, because they say there is only one value, but the determining point is the situation."
(c) Copyright 2000. The Christian Science Publishing Society