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Federal1040x Amendment

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Federal1040x Amendment

Federal1040x amendment 21. Federal1040x amendment   Medical and Dental Expenses Table of Contents What's New Introduction Useful Items - You may want to see: What Are Medical Expenses? What Expenses Can You Include This Year?Community property states. Federal1040x amendment How Much of the Expenses Can You Deduct? Whose Medical Expenses Can You Include?Yourself Spouse Dependent Decedent What Medical Expenses Are Includible?Insurance Premiums Meals and Lodging Transportation Disabled Dependent Care Expenses How Do You Treat Reimbursements?Insurance Reimbursement Damages for Personal Injuries How Do You Figure and Report the Deduction on Your Tax Return?What Tax Form Do You Use? Impairment-Related Work Expenses Health Insurance Costs for Self-Employed Persons What's New Medical and dental expenses. Federal1040x amendment  Beginning January 1, 2013, you can deduct only the part of your medical and dental expenses that exceed 10% of your adjusted gross income (AGI) (7. Federal1040x amendment 5% if either you or your spouse is age 65 or older). Federal1040x amendment Standard mileage rate. Federal1040x amendment  The standard mileage rate allowed for operating expenses for a car when you use it for medical reasons is 24 cents per mile. Federal1040x amendment See Transportation under What Medical Expenses Are Includible. Federal1040x amendment Introduction This chapter will help you determine the following. Federal1040x amendment What medical expenses are. Federal1040x amendment What expenses you can include this year. Federal1040x amendment How much of the expenses you can deduct. Federal1040x amendment Whose medical expenses you can include. Federal1040x amendment What medical expenses are includible. Federal1040x amendment How to treat reimbursements. Federal1040x amendment How to report the deduction on your tax return. Federal1040x amendment How to report impairment-related work expenses. Federal1040x amendment How to report health insurance costs if you are self-employed. Federal1040x amendment Useful Items - You may want to see: Publications 502 Medical and Dental Expenses 969 Health Savings Accounts and Other Tax-Favored Health Plans Form (and Instructions) Schedule A (Form 1040) Itemized Deductions What Are Medical Expenses? Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. Federal1040x amendment These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. Federal1040x amendment They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. Federal1040x amendment Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. Federal1040x amendment They do not include expenses that are merely beneficial to general health, such as vitamins or a vacation. Federal1040x amendment Medical expenses include the premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care. Federal1040x amendment Medical expenses also include amounts paid for qualified long-term care services and limited amounts paid for any qualified long-term care insurance contract. Federal1040x amendment What Expenses Can You Include This Year? You can include only the medical and dental expenses you paid this year, regardless of when the services were provided. Federal1040x amendment If you pay medical expenses by check, the day you mail or deliver the check generally is the date of payment. Federal1040x amendment If you use a “pay-by-phone” or “online” account to pay your medical expenses, the date reported on the statement of the financial institution showing when payment was made is the date of payment. Federal1040x amendment If you use a credit card, include medical expenses you charge to your credit card in the year the charge is made, not when you actually pay the amount charged. Federal1040x amendment Separate returns. Federal1040x amendment   If you and your spouse live in a noncommunity property state and file separate returns, each of you can include only the medical expenses each actually paid. Federal1040x amendment Any medical expenses paid out of a joint checking account in which you and your spouse have the same interest are considered to have been paid equally by each of you, unless you can show otherwise. Federal1040x amendment Community property states. Federal1040x amendment   If you and your spouse live in a community property state and file separate returns, or are registered domestic partners in Nevada, Washington, or California, any medical expenses paid out of community funds are divided equally. Federal1040x amendment Each of you should include half the expenses. Federal1040x amendment If medical expenses are paid out of the separate funds of one individual, only the individual who paid the medical expenses can include them. Federal1040x amendment If you live in a community property state, and are not filing a joint return, see Publication 555, Community Property. Federal1040x amendment How Much of the Expenses Can You Deduct? Generally, you can deduct on Schedule A (Form 1040) only the amount of your medical and dental expenses that is more than 10% of your AGI (7. Federal1040x amendment 5% of your AGI if either you or your spouse is age 65 or older)(Form 1040, line 38). Federal1040x amendment Example. Federal1040x amendment You are unmarried and under age 65 and your AGI is $40,000, 10% of which is $4,000. Federal1040x amendment You paid medical expenses of $2,500. Federal1040x amendment You cannot deduct any of your medical expenses because they are not more than 10% of your AGI. Federal1040x amendment Whose Medical Expenses Can You Include? You can generally include medical expenses you pay for yourself, as well as those you pay for someone who was your spouse or your dependent either when the services were provided or when you paid for them. Federal1040x amendment There are different rules for decedents and for individuals who are the subject of multiple support agreements. Federal1040x amendment See Support claimed under a multiple support agreement , later. Federal1040x amendment Yourself You can include medical expenses you paid for yourself. Federal1040x amendment Spouse You can include medical expenses you paid for your spouse. Federal1040x amendment To include these expenses, you must have been married either at the time your spouse received the medical services or at the time you paid the medical expenses. Federal1040x amendment Example 1. Federal1040x amendment Mary received medical treatment before she married Bill. Federal1040x amendment Bill paid for the treatment after they married. Federal1040x amendment Bill can include these expenses in figuring his medical expense deduction even if Bill and Mary file separate returns. Federal1040x amendment If Mary had paid the expenses, Bill could not include Mary's expenses in his separate return. Federal1040x amendment Mary would include the amounts she paid during the year in her separate return. Federal1040x amendment If they filed a joint return, the medical expenses both paid during the year would be used to figure their medical expense deduction. Federal1040x amendment Example 2. Federal1040x amendment This year, John paid medical expenses for his wife Louise, who died last year. Federal1040x amendment John married Belle this year and they file a joint return. Federal1040x amendment Because John was married to Louise when she received the medical services, he can include those expenses in figuring his medical expense deduction for this year. Federal1040x amendment Dependent You can include medical expenses you paid for your dependent. Federal1040x amendment For you to include these expenses, the person must have been your dependent either at the time the medical services were provided or at the time you paid the expenses. Federal1040x amendment A person generally qualifies as your dependent for purposes of the medical expense deduction if both of the following requirements are met. Federal1040x amendment The person was a qualifying child (defined later) or a qualifying relative (defined later), and The person was a U. Federal1040x amendment S. Federal1040x amendment citizen or national, or a resident of the United States, Canada, or Mexico. Federal1040x amendment If your qualifying child was adopted, see Exception for adopted child , next. Federal1040x amendment You can include medical expenses you paid for an individual that would have been your dependent except that: He or she received gross income of $3,900 or more in 2013, He or she filed a joint return for 2013, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. Federal1040x amendment Exception for adopted child. Federal1040x amendment   If you are a U. Federal1040x amendment S. Federal1040x amendment citizen or U. Federal1040x amendment S. Federal1040x amendment national and your adopted child lived with you as a member of your household for 2013, that child does not have to be a U. Federal1040x amendment S. Federal1040x amendment citizen or national or a resident of the United States, Canada, or Mexico. Federal1040x amendment Qualifying Child A qualifying child is a child who: Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew), Was: Under age 19 at the end of 2013 and younger than you (or your spouse, if filing jointly), Under age 24 at the end of 2013, a full-time student, and younger than you (or your spouse, if filing jointly), or Any age and permanently and totally disabled, Lived with you for more than half of 2013, Did not provide over half of his or her own support for 2013, and Did not file a joint return, or, if he or she did, it was only to claim a refund. Federal1040x amendment Adopted child. Federal1040x amendment   A legally adopted child is treated as your own child. Federal1040x amendment This includes a child lawfully placed with you for legal adoption. Federal1040x amendment   You can include medical expenses that you paid for a child before adoption if the child qualified as your dependent when the medical services were provided or when the expenses were paid. Federal1040x amendment   If you pay back an adoption agency or other persons for medical expenses they paid under an agreement with you, you are treated as having paid those expenses provided you clearly substantiate that the payment is directly attributable to the medical care of the child. Federal1040x amendment   But if you pay the agency or other person for medical care that was provided and paid for before adoption negotiations began, you cannot include them as medical expenses. Federal1040x amendment    You may be able to take an adoption credit for other expenses related to an adoption. Federal1040x amendment See the Instructions for Form 8839, Qualified Adoption Expenses, for more information. Federal1040x amendment Child of divorced or separated parents. Federal1040x amendment   For purposes of the medical and dental expenses deduction, a child of divorced or separated parents can be treated as a dependent of both parents. Federal1040x amendment Each parent can include the medical expenses he or she pays for the child, even if the other parent claims the child's dependency exemption, if: The child is in the custody of one or both parents for more than half the year, The child receives over half of his or her support during the year from his or her parents, and The child's parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Live apart at all times during the last 6 months of the year. Federal1040x amendment This does not apply if the child's exemption is being claimed under a multiple support agreement (discussed later). Federal1040x amendment Qualifying Relative A qualifying relative is a person: Who is your: Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild), Brother, sister, half brother, half sister, or a son or daughter of either of them, Father, mother, or an ancestor or sibling of either of them (for example, your grandmother, grandfather, aunt, or uncle), Stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law, or Any other person (other than your spouse) who lived with you all year as a member of your household if your relationship did not violate local law, Who was not a qualifying child (see Qualifying Child earlier) of any other person for 2013, and For whom you provided over half of the support in 2013. Federal1040x amendment But see Child of divorced or separated parents , earlier, and Support claimed under a multiple support agreement, next. Federal1040x amendment Support claimed under a multiple support agreement. Federal1040x amendment   If you are considered to have provided more than half of a qualifying relative's support under a multiple support agreement, you can include medical expenses you pay for that person. Federal1040x amendment A multiple support agreement is used when two or more people provide more than half of a person's support, but no one alone provides more than half. Federal1040x amendment   Any medical expenses paid by others who joined you in the agreement cannot be included as medical expenses by anyone. Federal1040x amendment However, you can include the entire unreimbursed amount you paid for medical expenses. Federal1040x amendment Example. Federal1040x amendment You and your three brothers each provide one-fourth of your mother's total support. Federal1040x amendment Under a multiple support agreement, you treat your mother as your dependent. Federal1040x amendment You paid all of her medical expenses. Federal1040x amendment Your brothers reimbursed you for three-fourths of these expenses. Federal1040x amendment In figuring your medical expense deduction, you can include only one-fourth of your mother's medical expenses. Federal1040x amendment Your brothers cannot include any part of the expenses. Federal1040x amendment However, if you and your brothers share the nonmedical support items and you separately pay all of your mother's medical expenses, you can include the unreimbursed amount you paid for her medical expenses in your medical expenses. Federal1040x amendment Decedent Medical expenses paid before death by the decedent are included in figuring any deduction for medical and dental expenses on the decedent's final income tax return. Federal1040x amendment This includes expenses for the decedent's spouse and dependents as well as for the decedent. Federal1040x amendment The survivor or personal representative of a decedent can choose to treat certain expenses paid by the decedent's estate for the decedent's medical care as paid by the decedent at the time the medical services were provided. Federal1040x amendment The expenses must be paid within the 1-year period beginning with the day after the date of death. Federal1040x amendment If you are the survivor or personal representative making this choice, you must attach a statement to the decedent's Form 1040 (or the decedent's amended return, Form 1040X) saying that the expenses have not been and will not be claimed on the estate tax return. Federal1040x amendment Qualified medical expenses paid before death by the decedent are not deductible if paid with a tax-free distribution from any Archer MSA, Medicare Advantage MSA, or health savings account. Federal1040x amendment Amended returns and claims for refund are discussed in chapter 1. Federal1040x amendment What if you pay medical expenses of a deceased spouse or dependent?   If you paid medical expenses for your deceased spouse or dependent, include them as medical expenses on your Form 1040 in the year paid, whether they are paid before or after the decedent's death. Federal1040x amendment The expenses can be included if the person was your spouse or dependent either at the time the medical services were provided or at the time you paid the expenses. Federal1040x amendment What Medical Expenses Are Includible? Use Table 21-1, later, as a guide to determine which medical and dental expenses you can include on Schedule A (Form 1040). Federal1040x amendment This table does not include all possible medical expenses. Federal1040x amendment To determine if an expense not listed can be included in figuring your medical expense deduction, see What Are Medical Expenses , earlier. Federal1040x amendment Insurance Premiums You can include in medical expenses insurance premiums you pay for policies that cover medical care. Federal1040x amendment Medical care policies can provide payment for treatment that includes: Hospitalization, surgical services, X-rays, Prescription drugs and insulin, Dental care, Replacement of lost or damaged contact lenses, and Long-term care (subject to additional limitations). Federal1040x amendment See Qualified Long-Term Care Insurance Contracts in Publication 502. Federal1040x amendment If you have a policy that provides payments for other than medical care, you can include the premiums for the medical care part of the policy if the charge for the medical part is reasonable. Federal1040x amendment The cost of the medical part must be separately stated in the insurance contract or given to you in a separate statement. Federal1040x amendment Note. Federal1040x amendment When figuring the amount of insurance premiums you can include in medical expenses on Schedule A, do not include any health coverage tax credit advance payments shown in box 1 of Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. Federal1040x amendment Also, do not include insurance premiums attributable to a nondependent child under age 27 if your premiums increased as a result of adding this child to your policy. Federal1040x amendment Employer-sponsored health insurance plan. Federal1040x amendment   Do not include in your medical and dental expenses any insurance premiums paid by an employer-sponsored health insurance plan unless the premiums are included in box 1 of your Form W-2. Federal1040x amendment Also, do not include any other medical and dental expenses paid by the plan unless the amount paid is included in box 1 of your Form W-2. Federal1040x amendment Example. Federal1040x amendment You are a federal employee participating in the premium conversion plan of the Federal Employee Health Benefits (FEHB) program. Federal1040x amendment Your share of the FEHB premium is paid by making a pre-tax reduction in your salary. Federal1040x amendment Because you are an employee whose insurance premiums are paid with money that is never included in your gross income, you cannot deduct the premiums paid with that money. Federal1040x amendment Long-term care services. Federal1040x amendment   Contributions made by your employer to provide coverage for qualified long-term care services under a flexible spending or similar arrangement must be included in your income. Federal1040x amendment This amount will be reported as wages in box 1 of your Form W-2. Federal1040x amendment Health reimbursement arrangement (HRA). Federal1040x amendment   If you have medical expenses that are reimbursed by a health reimbursement arrangement, you cannot include those expenses in your medical expenses. Federal1040x amendment This is because an HRA is funded solely by the employer. Federal1040x amendment Retired public safety officers. Federal1040x amendment   If you are a retired public safety officer, do not include as medical expenses any health or long-term care premiums that you elected to have paid with tax-free distributions from your retirement plan. Federal1040x amendment This applies only to distributions that would otherwise be included in income. Federal1040x amendment Medicare A. Federal1040x amendment   If you are covered under social security (or if you are a government employee who paid Medicare tax), you are enrolled in Medicare A. Federal1040x amendment The payroll tax paid for Medicare A is not a medical expense. Federal1040x amendment   If you are not covered under social security (or were not a government employee who paid Medicare tax), you can voluntarily enroll in Medicare A. Federal1040x amendment In this situation you can include the premiums you paid for Medicare A as a medical expense. Federal1040x amendment Medicare B. Federal1040x amendment   Medicare B is supplemental medical insurance. Federal1040x amendment Premiums you pay for Medicare B are a medical expense. Federal1040x amendment Check the information you received from the Social Security Administration to find out your premium. Federal1040x amendment Medicare D. Federal1040x amendment    Medicare D is a voluntary prescription drug insurance program for persons with Medicare A or B. Federal1040x amendment You can include as a medical expense premiums you pay for Medicare D. Federal1040x amendment Prepaid insurance premiums. Federal1040x amendment   Premiums you pay before you are age 65 for insurance for medical care for yourself, your spouse, or your dependents after you reach age 65 are medical care expenses in the year paid if they are: Payable in equal yearly installments, or more often, and Payable for at least 10 years, or until you reach age 65 (but not for less than 5 years). Federal1040x amendment Unused sick leave used to pay premiums. Federal1040x amendment   You must include in gross income cash payments you receive at the time of retirement for unused sick leave. Federal1040x amendment You also must include in gross income the value of unused sick leave that, at your option, your employer applies to the cost of your continuing participation in your employer's health plan after you retire. Federal1040x amendment You can include this cost of continuing participation in the health plan as a medical expense. Federal1040x amendment   If you participate in a health plan where your employer automatically applies the value of unused sick leave to the cost of your continuing participation in the health plan (and you do not have the option to receive cash), do not include the value of the unused sick leave in gross income. Federal1040x amendment You cannot include this cost of continuing participation in that health plan as a medical expense. Federal1040x amendment Table 21-1. Federal1040x amendment Medical and Dental Expenses Checklist. Federal1040x amendment See Publication 502 for more information about these and other expenses. Federal1040x amendment You can include: You cannot include: Bandages Birth control pills prescribed by your doctor Body scan Braille books Breast pump and supplies Capital expenses for equipment or improvements to your home needed for medical care (see the worksheet in Publication 502) Diagnostic devices Expenses of an organ donor Eye surgery—to promote the correct function of the eye Fertility enhancement, certain procedures Guide dogs or other animals aiding the blind, deaf, and disabled Hospital services fees (lab work, therapy, nursing services, surgery, etc. Federal1040x amendment ) Lead-based paint removal Legal abortion Legal operation to prevent having children such as a vasectomy or tubal ligation Long-term care contracts, qualified Meals and lodging provided by a hospital during medical treatment Medical services fees (from doctors, dentists, surgeons, specialists, and other medical practitioners) Medicare Part D premiums Medical and hospital insurance premiums Nursing services Oxygen equipment and oxygen Part of life-care fee paid to retirement home designated for medical care Physical examination Pregnancy test kit Prescription medicines (prescribed by a doctor) and insulin Psychiatric and psychological treatment Social security tax, Medicare tax, FUTA, and state employment tax for worker providing medical care (see Wages for nursing services, below) Special items (artificial limbs, false teeth, eye-glasses, contact lenses, hearing aids, crutches, wheelchair, etc. Federal1040x amendment ) Special education for mentally or physically disabled persons Stop-smoking programs Transportation for needed medical care Treatment at a drug or alcohol center (includes meals and lodging provided by the center) Wages for nursing services Weight-loss, certain expenses for obesity Baby sitting and childcare Bottled water Contributions to Archer MSAs (see Publication 969) Diaper service Expenses for your general health (even if following your doctor's advice) such as— —Health club dues —Household help (even if recommended by a doctor) —Social activities, such as dancing or swimming lessons —Trip for general health improvement Flexible spending account reimbursements for medical expenses (if contributions were on a pre-tax basis) Funeral, burial, or cremation expenses Health savings account payments for medical expenses Illegal operation, treatment, or medicine Life insurance or income protection policies, or policies providing payment for loss of life, limb, sight, etc. Federal1040x amendment Maternity clothes Medical insurance included in a car insurance policy covering all persons injured in or by your car Medicine you buy without a prescription Nursing care for a healthy baby Prescription drugs you brought in (or ordered shipped) from another country, in most cases Nutritional supplements, vitamins, herbal supplements, “natural medicines,” etc. Federal1040x amendment , unless recommended by a medical practitioner as a treatment for a specific medical condition diagnosed by a physician Surgery for purely cosmetic reasons Toothpaste, toiletries, cosmetics, etc. Federal1040x amendment Teeth whitening Weight-loss expenses not for the treatment of obesity or other disease Meals and Lodging You can include in medical expenses the cost of meals and lodging at a hospital or similar institution if a principal reason for being there is to get medical care. Federal1040x amendment See Nursing home , later. Federal1040x amendment You may be able to include in medical expenses the cost of lodging not provided in a hospital or similar institution. Federal1040x amendment You can include the cost of such lodging while away from home if all of the following requirements are met. Federal1040x amendment The lodging is primarily for and essential to medical care. Federal1040x amendment The medical care is provided by a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital. Federal1040x amendment The lodging is not lavish or extravagant under the circumstances. Federal1040x amendment There is no significant element of personal pleasure, recreation, or vacation in the travel away from home. Federal1040x amendment The amount you include in medical expenses for lodging cannot be more than $50 for each night for each person. Federal1040x amendment You can include lodging for a person traveling with the person receiving the medical care. Federal1040x amendment For example, if a parent is traveling with a sick child, up to $100 per night can be included as a medical expense for lodging. Federal1040x amendment Meals are not included. Federal1040x amendment Nursing home. Federal1040x amendment   You can include in medical expenses the cost of medical care in a nursing home, home for the aged, or similar institution, for yourself, your spouse, or your dependents. Federal1040x amendment This includes the cost of meals and lodging in the home if a principal reason for being there is to get medical care. Federal1040x amendment   Do not include the cost of meals and lodging if the reason for being in the home is personal. Federal1040x amendment You can, however, include in medical expenses the part of the cost that is for medical or nursing care. Federal1040x amendment Transportation Include in medical expenses amounts paid for transportation primarily for, and essential to, medical care. Federal1040x amendment You can include: Bus, taxi, train, or plane fares, or ambulance service, Transportation expenses of a parent who must go with a child who needs medical care, Transportation expenses of a nurse or other person who can give injections, medications, or other treatment required by a patient who is traveling to get medical care and is unable to travel alone, and Transportation expenses for regular visits to see a mentally ill dependent, if these visits are recommended as a part of treatment. Federal1040x amendment Car expenses. Federal1040x amendment   You can include out-of-pocket expenses, such as the cost of gas and oil, when you use your car for medical reasons. Federal1040x amendment You cannot include depreciation, insurance, general repair, or maintenance expenses. Federal1040x amendment   If you do not want to use your actual expenses for 2013, you can use the standard medical mileage rate of 24 cents per mile. Federal1040x amendment    You can also include parking fees and tolls. Federal1040x amendment You can add these fees and tolls to your medical expenses whether you use actual expenses or use the standard mileage rate. Federal1040x amendment Example. Federal1040x amendment In 2013, Bill Jones drove 2,800 miles for medical reasons. Federal1040x amendment He spent $500 for gas, $30 for oil, and $100 for tolls and parking. Federal1040x amendment He wants to figure the amount he can include in medical expenses both ways to see which gives him the greater deduction. Federal1040x amendment He figures the actual expenses first. Federal1040x amendment He adds the $500 for gas, the $30 for oil, and the $100 for tolls and parking for a total of $630. Federal1040x amendment He then figures the standard mileage amount. Federal1040x amendment He multiplies 2,800 miles by 24 cents a mile for a total of $672. Federal1040x amendment He then adds the $100 tolls and parking for a total of $772. Federal1040x amendment Bill includes the $772 of car expenses with his other medical expenses for the year because the $772 is more than the $630 he figured using actual expenses. Federal1040x amendment Transportation expenses you cannot include. Federal1040x amendment   You cannot include in medical expenses the cost of transportation in the following situations. Federal1040x amendment Going to and from work, even if your condition requires an unusual means of transportation. Federal1040x amendment Travel for purely personal reasons to another city for an operation or other medical care. Federal1040x amendment Travel that is merely for the general improvement of one's health. Federal1040x amendment The costs of operating a specially equipped car for other than medical reasons. Federal1040x amendment Disabled Dependent Care Expenses Some disabled dependent care expenses may qualify as either: Medical expenses, or Work-related expenses for purposes of taking a credit for dependent care. Federal1040x amendment (See chapter 32 and Publication 503, Child and Dependent Care Expenses. Federal1040x amendment ) You can choose to apply them either way as long as you do not use the same expenses to claim both a credit and a medical expense deduction. Federal1040x amendment How Do You Treat Reimbursements? You can include in medical expenses only those amounts paid during the taxable year for which you received no insurance or other reimbursement. Federal1040x amendment Insurance Reimbursement You must reduce your total medical expenses for the year by all reimbursements for medical expenses that you receive from insurance or other sources during the year. Federal1040x amendment This includes payments from Medicare. Federal1040x amendment Even if a policy provides reimbursement for only certain specific medical expenses, you must use amounts you receive from that policy to reduce your total medical expenses, including those it does not reimburse. Federal1040x amendment Example. Federal1040x amendment You have insurance policies that cover your hospital and doctors' bills but not your nursing bills. Federal1040x amendment The insurance you receive for the hospital and doctors' bills is more than their charges. Federal1040x amendment In figuring your medical deduction, you must reduce the total amount you spent for medical care by the total amount of insurance you received, even if the policies do not cover some of your medical expenses. Federal1040x amendment Health reimbursement arrangement (HRA). Federal1040x amendment   A health reimbursement arrangement is an employer-funded plan that reimburses employees for medical care expenses and allows unused amounts to be carried forward. Federal1040x amendment An HRA is funded solely by the employer and the reimbursements for medical expenses, up to a maximum dollar amount for a coverage period, are not included in your income. Federal1040x amendment Other reimbursements. Federal1040x amendment   Generally, you do not reduce medical expenses by payments you receive for: Permanent loss or loss of use of a member or function of the body (loss of limb, sight, hearing, etc. Federal1040x amendment ) or disfigurement to the extent the payment is based on the nature of the injury without regard to the amount of time lost from work, or Loss of earnings. Federal1040x amendment   You must, however, reduce your medical expenses by any part of these payments that is designated for medical costs. Federal1040x amendment See How Do You Figure and Report the Deduction on Your Tax Return , later. Federal1040x amendment   For how to treat damages received for personal injury or sickness, see Damages for Personal Injuries , later. Federal1040x amendment You do not have a medical deduction if you are reimbursed for all of your medical expenses for the year. Federal1040x amendment Excess reimbursement. Federal1040x amendment   If you are reimbursed more than your medical expenses, you may have to include the excess in income. Federal1040x amendment You may want to use Figure 21-A to help you decide if any of your reimbursement is taxable. Federal1040x amendment Premiums paid by you. Federal1040x amendment   If you pay either the entire premium for your medical insurance or all of the costs of a plan similar to medical insurance and your insurance payments or other reimbursements are more than your total medical expenses for the year, you have an excess reimbursement. Federal1040x amendment Generally, you do not include the excess reimbursement in your gross income. Federal1040x amendment Premiums paid by you and your employer. Federal1040x amendment   If both you and your employer contribute to your medical insurance plan and your employer's contributions are not included in your gross income, you must include in your gross income the part of your excess reimbursement that is from your employer's contribution. Federal1040x amendment   See Publication 502 to figure the amount of the excess reimbursement you must include in gross income. Federal1040x amendment Reimbursement in a later year. Federal1040x amendment   If you are reimbursed in a later year for medical expenses you deducted in an earlier year, you generally must report the reimbursement as income up to the amount you previously deducted as medical expenses. Federal1040x amendment   However, do not report as income the amount of reimbursement you received up to the amount of your medical deductions that did not reduce your tax for the earlier year. Federal1040x amendment For more information about the recovery of an amount that you claimed as an itemized deduction in an earlier year, see Itemized Deduction Recoveries in chapter 12. Federal1040x amendment Figure 21-A. Federal1040x amendment Is Your Excess Medical Reimbursement Taxable? Please click here for the text description of the image. Federal1040x amendment Figure 21-A. Federal1040x amendment Is Your Excess Medical Reimbursement Taxable? Medical expenses not deducted. Federal1040x amendment   If you did not deduct a medical expense in the year you paid it because your medical expenses were not more than 10% of your AGI (7. Federal1040x amendment 5% of your AGI if either you or your spouse was age 65 or older), or because you did not itemize deductions, do not include the reimbursement up to the amount of the expense in income. Federal1040x amendment However, if the reimbursement is more than the expense, see Excess reimbursement , earlier. Federal1040x amendment Example. Federal1040x amendment For 2013, you were unmarried and under age 65 and you had medical expenses of $500. Federal1040x amendment You cannot deduct the $500 because it is less than 10% of your AGI. Federal1040x amendment If, in a later year, you are reimbursed for any of the $500 in medical expenses, you do not include the amount reimbursed in your gross income. Federal1040x amendment Damages for Personal Injuries If you receive an amount in settlement of a personal injury suit, part of that award may be for medical expenses that you deducted in an earlier year. Federal1040x amendment If it is, you must include that part in your income in the year you receive it to the extent it reduced your taxable income in the earlier year. Federal1040x amendment See Reimbursement in a Later Year , discussed under How Do You Treat Reimbursements, earlier. Federal1040x amendment Future medical expenses. Federal1040x amendment   If you receive an amount in settlement of a damage suit for personal injuries, part of that award may be for future medical expenses. Federal1040x amendment If it is, you must reduce any future medical expenses for these injuries until the amount you received has been completely used. Federal1040x amendment How Do You Figure and Report the Deduction on Your Tax Return? Once you have determined which medical expenses you can include, you figure and report the deduction on your tax return. Federal1040x amendment What Tax Form Do You Use? You figure your medical expense deduction on Schedule A (Form 1040). Federal1040x amendment You cannot claim medical expenses on Form 1040A or Form 1040EZ. Federal1040x amendment If you need more information on itemized deductions or you are not sure if you can itemize, see chapter 20. Federal1040x amendment Enter the amount you paid for medical and dental expenses on Schedule A (Form 1040). Federal1040x amendment This should be your expenses that were not reimbursed by insurance or any other sources. Federal1040x amendment Generally, you can deduct only the amount of your medical and dental expenses that is more than 10% of your AGI (7. Federal1040x amendment 5% if either you or your spouse was age 65 or older) shown on line 38, Form 1040. Federal1040x amendment Impairment-Related Work Expenses If you are a person with a disability, you can take a business deduction for expenses that are necessary for you to be able to work. Federal1040x amendment If you take a business deduction for impairment-related work expenses, do not take a medical deduction for the same expenses. Federal1040x amendment You have a disability if you have: A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed, or A physical or mental impairment (for example, a sight or hearing impairment) that substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, or working. Federal1040x amendment Impairment-related expenses defined. Federal1040x amendment   Impairment-related expenses are those ordinary and necessary business expenses that are: Necessary for you to do your work satisfactorily, For goods and services not required or used, other than incidentally, in your personal activities, and Not specifically covered under other income tax laws. Federal1040x amendment Where to report. Federal1040x amendment   If you are self-employed, deduct the business expenses on the appropriate form (Schedule C, C-EZ, E, or F) used to report your business income and expenses. Federal1040x amendment   If you are an employee, complete Form 2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses. Federal1040x amendment Enter on Schedule A (Form 1040), that part of the amount on Form 2106, or Form 2106-EZ, that is related to your impairment. Federal1040x amendment Enter the amount that is unrelated to your impairment also on Schedule A (Form 1040). Federal1040x amendment Your impairment-related work expenses are not subject to the 2%-of-adjusted-gross-income limit that applies to other employee business expenses. Federal1040x amendment Example. Federal1040x amendment You are blind. Federal1040x amendment You must use a reader to do your work. Federal1040x amendment You use the reader both during your regular working hours at your place of work and outside your regular working hours away from your place of work. Federal1040x amendment The reader's services are only for your work. Federal1040x amendment You can deduct your expenses for the reader as business expenses. Federal1040x amendment Health Insurance Costs for Self-Employed Persons If you were self-employed and had a net profit for the year, you may be able to deduct, as an adjustment to income, amounts paid for medical and qualified long-term care insurance on behalf of yourself, your spouse, your dependents, and, your children who were under age 27 at the end of 2013. Federal1040x amendment For this purpose, you were self-employed if you were a general partner (or a limited partner receiving guaranteed payments) or you received wages from an S corporation in which you were more than a 2% shareholder. Federal1040x amendment The insurance plan must be established under your trade or business and the deduction cannot be more than your earned income from that trade or business. Federal1040x amendment You cannot deduct payments for medical insurance for any month in which you were eligible to participate in a health plan subsidized by your employer, your spouse's employer, or, an employer of your dependent or your child under age 27 at the end of 2013. Federal1040x amendment You cannot deduct payments for a qualified long-term care insurance contract for any month in which you were eligible to participate in a long-term care insurance plan subsidized by your employer or your spouse's employer. Federal1040x amendment If you qualify to take the deduction, use the Self-Employed Health Insurance Deduction Worksheet in the Form 1040 instructions to figure the amount you can deduct. Federal1040x amendment But if any of the following applies, do not use that worksheet. Federal1040x amendment You had more than one source of income subject to self-employment tax. Federal1040x amendment You file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. Federal1040x amendment You are using amounts paid for qualified long-term care insurance to figure the deduction. Federal1040x amendment If you cannot use the worksheet in the Form 1040 instructions, use the worksheet in Publication 535, Business Expenses, to figure your deduction. Federal1040x amendment Note. Federal1040x amendment When figuring the amount you can deduct for insurance premiums, do not include any advance payments shown on Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. Federal1040x amendment If you are claiming the health coverage tax credit, subtract the amount shown on Form 8885, from the total insurance premiums you paid. Federal1040x amendment Do not include amounts paid for health insurance coverage with retirement plan distributions that were tax-free because you are a retired public safety officer. Federal1040x amendment Where to report. Federal1040x amendment    You take this deduction on Form 1040. Federal1040x amendment If you itemize your deductions and do not claim 100% of your self-employed health insurance on Form 1040, you can generally include any remaining premiums with all other medical expenses on Schedule A (Form 1040), subject to the 10% limit (7. Federal1040x amendment 5% if either you or your spouse was age 65 or older). Federal1040x amendment See Self-Employed Health Insurance Deduction in chapter 6 of Publication 535, Business Expenses, and Medical and Dental Expenses in the Instructions for Schedule A (Form 1040), for more information. Federal1040x amendment Prev  Up  Next   Home   More Online Publications

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Whistleblower - Informant Award

The IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the tax that they owe. If the IRS uses information provided by the whistleblower, it can award the whistleblower up to 30 percent of the additional tax, penalty and other amounts it collects.

 


Fiscal 2014 Sequester Notice from Whistleblower Office dated October 1, 2013:  Impact on whistleblower payments.

Fiscal 2013 Sequester Notice from Whistleblower Office dated March 1, 2013: Impact on whistleblower payments.

Treasury proposed regulations to implement 26 USC 7623, as amended, on December 18, 2012. The public comment period has officially closed and the comments received are under evaluation. The IRS often receives comments on proposed regulations after the official comment period has closed and may consider late submissions in preparing final regulations. 

 


The Whistleblower Office has developed new rules that became effective August 1, 2012. We are providing the three Interim Guidance memoranda below. 


Deputy Commissioner for Services and Enforcement Memorandum dated June 20, 2012

 


Who can get an award?

The IRS may pay awards to people who provide specific and credible information to the IRS if the information results in the collection of taxes, penalties, interest or other amounts from the noncompliant taxpayer.

The IRS is looking for solid information, not an “educated guess” or unsupported speculation. We are also looking for a significant Federal tax issue - this is not a program for resolving personal problems or disputes about a business relationship.

What are the rules for getting an award?

The law provides for two types of awards. If the taxes, penalties, interest and other amounts in dispute exceed $2 million, and a few other qualifications are met, the IRS will pay 15 percent to 30 percent of the amount collected. If the case deals with an individual, his or her annual gross income must be more than $200,000. If the whistleblower disagrees with the outcome of the claim, he or she can appeal to the Tax Court. These rules are found at Internal Revenue Code IRC Section 7623(b) - Whistleblower Rules.

The IRS also has an award program for other whistleblowers - generally those who do not meet the dollar thresholds of $2 million in dispute or cases involving individual taxpayers with gross income of less that $200,000. The awards through this program are less, with a maximum award of 15 percent up to $10 million. In addition, the awards are discretionary and the informant cannot dispute the outcome of the claim in Tax Court. The rules for these cases are found at Internal Revenue Code IRC Section 7623(a) - Informant Claims Program, and some of the rules are different from those that apply to cases involving more than $2 million.

If you decide to submit information and seek an award for doing so, use IRS Form 211. The same form is used for both award programs.

More Information

What Happens to a Claim for an Informant Award (Whistleblower)
Procedures used and the criteria followed to identify and process informant cases

Whistleblower Law
A brief synopsis of what the new whistleblower law entails. This is the most significant change to the Services’ approach to informant awards in 140 years

How Do You File a Whistleblower Award Claim
Step by step procedures to follow to file an informant claim for award

Confidentiality and Disclosure for Whistleblowers
The rules governing confidentiality of informant information

IRC Section 7623(b) - Whistleblower Rules
The requirements of the new rules enacted in IRC Section 7623(b), the Whistleblower Program

IRC Section 7623(a) - Informant Claims Program
The requirement of the rules governing claims that do not meet the requirements of the provisions in the whistleblower program under IRC Section 7623(b). These claims are part of the Informant Claims Program

IRS Form 211
Application for Award for Original Information

News Release IR-2007-201
Procedure Unveiled for Reporting Violations of the Tax Law, Making Reward Claims

Notice 2008-4 Guidance to the public on how to file claims
Claims Submitted to the IRS Whistleblower Office under Section 7623

History of the Whistleblower/Informant Program
Historical information on the evolution of the concept of paying for leads from its inception up to the current law followed today

Realignment of Informant Claims Examination Unit into Whistleblower Office
The Informant Claims Examination Unit in Ogden, Utah has been realigned with the Whistleblower Office. Their new name is Whistleblower Office - Ogden.

Information and Whistleblower Awards

  • IRM 25.2.1, Receiving Information — This chapter provides procedures and guidance for all Service personnel to follow when receiving information dealing with whistleblowers’ claims for award.
  • IRM 25.2.2, Whistleblower Awards — This chapter provides procedures and guidance for all Service personnel to follow when dealing with payment of whistleblowers’ claims for award.

Whistleblower Office At-a-Glance
 

Annual Reports

Reporting other information to the IRS

If you have information about tax noncompliance but are not interested in an award, or you have other information you believe may be of interest to the IRS:

  • For information on how to Report Suspected Tax Fraud Activity, if you have information about an individual or company you suspect is not complying with the tax law, and you do not want to seek an award . You can remain anonymous
Page Last Reviewed or Updated: 30-Sep-2013

The Federal1040x Amendment

Federal1040x amendment Publication 561 - Main Contents Table of Contents What Is Fair Market Value (FMV)?Factors. Federal1040x amendment Stock. Federal1040x amendment Options. Federal1040x amendment Determining Fair Market Value Problems in Determining Fair Market Value Valuation of Various Kinds of PropertyHousehold Goods Used Clothing Jewelry and Gems Paintings, Antiques, and Other Objects of Art Collections Cars, Boats, and Aircraft Inventory Patents Stocks and Bonds Real Estate Interest in a Business Annuities, Interests for Life or Terms of Years, Remainders, and Reversions Certain Life Insurance and Annuity Contracts Partial Interest in Property Not in Trust AppraisalsDeductions of More Than $5,000 Deductions of More Than $500,000 Qualified Appraisal Form 8283 Internal Revenue Service Review of Appraisals Penalty How To Get Tax HelpLow income tax clinics (LITCs). Federal1040x amendment What Is Fair Market Value (FMV)? To figure how much you may deduct for property that you contribute, you must first determine its fair market value on the date of the contribution. Federal1040x amendment Fair market value. Federal1040x amendment   Fair market value (FMV) is the price that property would sell for on the open market. Federal1040x amendment It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts. Federal1040x amendment If you put a restriction on the use of property you donate, the FMV must reflect that restriction. Federal1040x amendment Example 1. Federal1040x amendment If you give used clothing to the Salvation Army, the FMV would be the price that typical buyers actually pay for clothing of this age, condition, style, and use. Federal1040x amendment Usually, such items are worth far less than what you paid for them. Federal1040x amendment Example 2. Federal1040x amendment If you donate land and restrict its use to agricultural purposes, you must value the land at its value for agricultural purposes, even though it would have a higher FMV if it were not restricted. Federal1040x amendment Factors. Federal1040x amendment   In making and supporting the valuation of property, all factors affecting value are relevant and must be considered. Federal1040x amendment These include: The cost or selling price of the item, Sales of comparable properties, Replacement cost, and Opinions of experts. Federal1040x amendment   These factors are discussed later. Federal1040x amendment Also, see Table 1 for a summary of questions to ask as you consider each factor. Federal1040x amendment Date of contribution. Federal1040x amendment   Ordinarily, the date of a contribution is the date that the transfer of the property takes place. Federal1040x amendment Stock. Federal1040x amendment   If you deliver, without any conditions, a properly endorsed stock certificate to a qualified organization or to an agent of the organization, the date of the contribution is the date of delivery. Federal1040x amendment If the certificate is mailed and received through the regular mail, it is the date of mailing. Federal1040x amendment If you deliver the certificate to a bank or broker acting as your agent or to the issuing corporation or its agent, for transfer into the name of the organization, the date of the contribution is the date the stock is transferred on the books of the corporation. Federal1040x amendment Options. Federal1040x amendment   If you grant an option to a qualified organization to buy real property, you have not made a charitable contribution until the organization exercises the option. Federal1040x amendment The amount of the contribution is the FMV of the property on the date the option is exercised minus the exercise price. Federal1040x amendment Example. Federal1040x amendment You grant an option to a local university, which is a qualified organization, to buy real property. Federal1040x amendment Under the option, the university could buy the property at any time during a 2-year period for $40,000. Federal1040x amendment The FMV of the property on the date the option is granted is $50,000. Federal1040x amendment In the following tax year, the university exercises the option. Federal1040x amendment The FMV of the property on the date the option is exercised is $55,000. Federal1040x amendment Therefore, you have made a charitable contribution of $15,000 ($55,000, the FMV, minus $40,000, the exercise price) in the tax year the option is exercised. Federal1040x amendment Determining Fair Market Value Determining the value of donated property would be a simple matter if you could rely only on fixed formulas, rules, or methods. Federal1040x amendment Usually it is not that simple. Federal1040x amendment Using such formulas, etc. Federal1040x amendment , seldom results in an acceptable determination of FMV. Federal1040x amendment There is no single formula that always applies when determining the value of property. Federal1040x amendment This is not to say that a valuation is only guesswork. Federal1040x amendment You must consider all the facts and circumstances connected with the property, such as its desirability, use, and scarcity. Federal1040x amendment For example, donated furniture should not be evaluated at some fixed rate such as 15% of the cost of new replacement furniture. Federal1040x amendment When the furniture is contributed, it may be out of style or in poor condition, therefore having little or no market value. Federal1040x amendment On the other hand, it may be an antique, the value of which could not be determined by using any formula. Federal1040x amendment Cost or Selling Price of the Donated Property The cost of the property to you or the actual selling price received by the qualified organization may be the best indication of its FMV. Federal1040x amendment However, because conditions in the market change, the cost or selling price of property may have less weight if the property was not bought or sold reasonably close to the date of contribution. Federal1040x amendment The cost or selling price is a good indication of the property's value if: The purchase or sale took place close to the valuation date in an open market, The purchase or sale was at “arm's-length,” The buyer and seller knew all relevant facts, The buyer and seller did not have to act, and The market did not change between the date of purchase or sale and the valuation date. Federal1040x amendment Example. Federal1040x amendment Tom Morgan, who is not a dealer in gems, bought an assortment of gems for $5,000 from a promoter. Federal1040x amendment The promoter claimed that the price was “wholesale” even though he and other dealers made similar sales at similar prices to other persons who were not dealers. Federal1040x amendment The promoter said that if Tom kept the gems for more than 1 year and then gave them to charity, Tom could claim a charitable deduction of $15,000, which, according to the promoter, would be the value of the gems at the time of contribution. Federal1040x amendment Tom gave the gems to a qualified charity 13 months after buying them. Federal1040x amendment The selling price for these gems had not changed from the date of purchase to the date he donated them to charity. Federal1040x amendment The best evidence of FMV depends on actual transactions and not on some artificial estimate. Federal1040x amendment The $5,000 charged Tom and others is, therefore, the best evidence of the maximum FMV of the gems. Federal1040x amendment Terms of the purchase or sale. Federal1040x amendment   The terms of the purchase or sale should be considered in determining FMV if they influenced the price. Federal1040x amendment These terms include any restrictions, understandings, or covenants limiting the use or disposition of the property. Federal1040x amendment Rate of increase or decrease in value. Federal1040x amendment   Unless you can show that there were unusual circumstances, it is assumed that the increase or decrease in the value of your donated property from your cost has been at a reasonable rate. Federal1040x amendment For time adjustments, an appraiser may consider published price indexes for information on general price trends, building costs, commodity costs, securities, and works of art sold at auction in arm's-length sales. Federal1040x amendment Example. Federal1040x amendment Bill Brown bought a painting for $10,000. Federal1040x amendment Thirteen months later he gave it to an art museum, claiming a charitable deduction of $15,000 on his tax return. Federal1040x amendment The appraisal of the painting should include information showing that there were unusual circumstances that justify a 50% increase in value for the 13 months Bill held the property. Federal1040x amendment Arm's-length offer. Federal1040x amendment   An arm's-length offer to buy the property close to the valuation date may help to prove its value if the person making the offer was willing and able to complete the transaction. Federal1040x amendment To rely on an offer, you should be able to show proof of the offer and the specific amount to be paid. Federal1040x amendment Offers to buy property other than the donated item will help to determine value if the other property is reasonably similar to the donated property. Federal1040x amendment Sales of Comparable Properties The sales prices of properties similar to the donated property are often important in determining the FMV. Federal1040x amendment The weight to be given to each sale depends on the following. Federal1040x amendment The degree of similarity between the property sold and the donated property. Federal1040x amendment The time of the sale—whether it was close to the valuation date. Federal1040x amendment The circumstances of the sale—whether it was at arm's-length with a knowledgeable buyer and seller, with neither having to act. Federal1040x amendment The conditions of the market in which the sale was made—whether unusually inflated or deflated. Federal1040x amendment The comparable sales method of valuing real estate is explained later under Valuation of Various Kinds of Property. Federal1040x amendment Example 1. Federal1040x amendment Mary Black, who is not a book dealer, paid a promoter $10,000 for 500 copies of a single edition of a modern translation of the Bible. Federal1040x amendment The promoter had claimed that the price was considerably less than the “retail” price, and gave her a statement that the books had a total retail value of $30,000. Federal1040x amendment The promoter advised her that if she kept the Bibles for more than 1 year and then gave them to a qualified organization, she could claim a charitable deduction for the “retail” price of $30,000. Federal1040x amendment Thirteen months later she gave all the Bibles to a church that she selected from a list provided by the promoter. Federal1040x amendment At the time of her donation, wholesale dealers were selling similar quantities of Bibles to the general public for $10,000. Federal1040x amendment The FMV of the Bibles is $10,000, the price at which similar quantities of Bibles were being sold to others at the time of the contribution. Federal1040x amendment Example 2. Federal1040x amendment The facts are the same as in Example 1, except that the promoter gave Mary Black a second option. Federal1040x amendment The promoter said that if Mary wanted a charitable deduction within 1 year of the purchase, she could buy the 500 Bibles at the “retail” price of $30,000, paying only $10,000 in cash and giving a promissory note for the remaining $20,000. Federal1040x amendment The principal and interest on the note would not be due for 12 years. Federal1040x amendment According to the promoter, Mary could then, within 1 year of the purchase, give the Bibles to a qualified organization and claim the full $30,000 retail price as a charitable contribution. Federal1040x amendment She purchased the Bibles under the second option and, 3 months later, gave them to a church, which will use the books for church purposes. Federal1040x amendment At the time of the gift, the promoter was selling similar lots of Bibles for either $10,000 or $30,000. Federal1040x amendment The difference between the two prices was solely at the discretion of the buyer. Federal1040x amendment The promoter was a willing seller for $10,000. Federal1040x amendment Therefore, the value of Mary's contribution of the Bibles is $10,000, the amount at which similar lots of Bibles could be purchased from the promoter by members of the general public. Federal1040x amendment Replacement Cost The cost of buying, building, or manufacturing property similar to the donated item should be considered in determining FMV. Federal1040x amendment However, there must be a reasonable relationship between the replacement cost and the FMV. Federal1040x amendment The replacement cost is the amount it would cost to replace the donated item on the valuation date. Federal1040x amendment Often there is no relationship between the replacement cost and the FMV. Federal1040x amendment If the supply of the donated property is more or less than the demand for it, the replacement cost becomes less important. Federal1040x amendment To determine the replacement cost of the donated property, find the “estimated replacement cost new. Federal1040x amendment ” Then subtract from this figure an amount for depreciation due to the physical condition and obsolescence of the donated property. Federal1040x amendment You should be able to show the relationship between the depreciated replacement cost and the FMV, as well as how you arrived at the “estimated replacement cost new. Federal1040x amendment ” Opinions of Experts Generally, the weight given to an expert's opinion on matters such as the authenticity of a coin or a work of art, or the most profitable and best use of a piece of real estate, depends on the knowledge and competence of the expert and the thoroughness with which the opinion is supported by experience and facts. Federal1040x amendment For an expert's opinion to deserve much weight, the facts must support the opinion. Federal1040x amendment For additional information, see Appraisals, later. Federal1040x amendment Table 1. Federal1040x amendment Factors That Affect FMV IF the factor you are considering is. Federal1040x amendment . Federal1040x amendment . Federal1040x amendment THEN you should ask these questions. Federal1040x amendment . Federal1040x amendment . Federal1040x amendment     cost or selling price Was the purchase or sale of the property reasonably close to the date of contribution? Was any increase or decrease in value, as compared to your cost, at a reasonable rate? Do the terms of purchase or sale limit what can be done with the property? Was there an arm's-length offer to buy the property close to the valuation date?     sales of comparable properties How similar is the property sold to the property donated? How close is the date of sale to the valuation date? Was the sale at arm's-length? What was the condition of the market at the time of sale?     replacement cost What would it cost to replace the donated property? Is there a reasonable relationship between replacement cost and FMV? Is the supply of the donated property more or less than the demand for it?     opinions of experts Is the expert knowledgeable and competent? Is the opinion thorough and supported by facts and experience? Problems in Determining Fair Market Value There are a number of problems in determining the FMV of donated property. Federal1040x amendment Unusual Market Conditions The sale price of the property itself in an arm's-length transaction in an open market is often the best evidence of its value. Federal1040x amendment When you rely on sales of comparable property, the sales must have been made in an open market. Federal1040x amendment If those sales were made in a market that was artificially supported or stimulated so as not to be truly representative, the prices at which the sales were made will not indicate the FMV. Federal1040x amendment For example, liquidation sale prices usually do not indicate the FMV. Federal1040x amendment Also, sales of stock under unusual circumstances, such as sales of small lots, forced sales, and sales in a restricted market, may not represent the FMV. Federal1040x amendment Selection of Comparable Sales Using sales of comparable property is an important method for determining the FMV of donated property. Federal1040x amendment However, the amount of weight given to a sale depends on the degree of similarity between the comparable and the donated properties. Federal1040x amendment The degree of similarity must be close enough so that this selling price would have been given consideration by reasonably well-informed buyers or sellers of the property. Federal1040x amendment Example. Federal1040x amendment You give a rare, old book to your former college. Federal1040x amendment The book is a third edition and is in poor condition because of a missing back cover. Federal1040x amendment You discover that there was a sale for $300, near the valuation date, of a first edition of the book that was in good condition. Federal1040x amendment Although the contents are the same, the books are not at all similar because of the different editions and their physical condition. Federal1040x amendment Little consideration would be given to the selling price of the $300 property by knowledgeable buyers or sellers. Federal1040x amendment Future Events You may not consider unexpected events happening after your donation of property in making the valuation. Federal1040x amendment You may consider only the facts known at the time of the gift, and those that could be reasonably expected at the time of the gift. Federal1040x amendment Example. Federal1040x amendment You give farmland to a qualified charity. Federal1040x amendment The transfer provides that your mother will have the right to all income and full use of the property for her life. Federal1040x amendment Even though your mother dies 1 week after the transfer, the value of the property on the date it is given is its present value, subject to the life interest as estimated from actuarial tables. Federal1040x amendment You may not take a higher deduction because the charity received full use and possession of the land only 1 week after the transfer. Federal1040x amendment Using Past Events to Predict the Future A common error is to rely too much on past events that do not fairly reflect the probable future earnings and FMV. Federal1040x amendment Example. Federal1040x amendment You give all your rights in a successful patent to your favorite charity. Federal1040x amendment Your records show that before the valuation date there were three stages in the patent's history of earnings. Federal1040x amendment First, there was rapid growth in earnings when the invention was introduced. Federal1040x amendment Then, there was a period of high earnings when the invention was being exploited. Federal1040x amendment Finally, there was a decline in earnings when competing inventions were introduced. Federal1040x amendment The entire history of earnings may be relevant in estimating the future earnings. Federal1040x amendment However, the appraiser must not rely too much on the stage of rapid growth in earnings, or of high earnings. Federal1040x amendment The market conditions at those times do not represent the condition of the market at the valuation date. Federal1040x amendment What is most significant is the trend of decline in earnings up to the valuation date. Federal1040x amendment For more information about donations of patents, see Patents, later. Federal1040x amendment Valuation of Various Kinds of Property This section contains information on determining the FMV of ordinary kinds of donated property. Federal1040x amendment For information on appraisals, see Appraisals, later. Federal1040x amendment Household Goods The FMV of used household goods, such as furniture, appliances, and linens, is usually much lower than the price paid when new. Federal1040x amendment Such used property may have little or no market value because of its worn condition. Federal1040x amendment It may be out of style or no longer useful. Federal1040x amendment You cannot take a deduction for household goods donated after August 17, 2006, unless they are in good used condition or better. Federal1040x amendment A household good that is not in good used condition or better for which you take a deduction of more than $500 requires a qualified appraisal. Federal1040x amendment See Deduction over $500 for certain clothing or household items, later. Federal1040x amendment If the property is valuable because it is old or unique, see the discussion under Paintings, Antiques, and Other Objects of Art. Federal1040x amendment Used Clothing Used clothing and other personal items are usually worth far less than the price you paid for them. Federal1040x amendment Valuation of items of clothing does not lend itself to fixed formulas or methods. Federal1040x amendment The price that buyers of used items actually pay in used clothing stores, such as consignment or thrift shops, is an indication of the value. Federal1040x amendment You cannot take a deduction for clothing donated after August 17, 2006, unless it is in good used condition or better. Federal1040x amendment An item of clothing that is not in good used condition or better for which you take a deduction of more than $500 requires a qualified appraisal. Federal1040x amendment See Deduction over $500 for certain clothing or household items, later. Federal1040x amendment For valuable furs or very expensive gowns, a Form 8283 may have to be sent with your tax return. Federal1040x amendment Jewelry and Gems Jewelry and gems are of such a specialized nature that it is almost always necessary to get an appraisal by a specialized jewelry appraiser. Federal1040x amendment The appraisal should describe, among other things, the style of the jewelry, the cut and setting of the gem, and whether it is now in fashion. Federal1040x amendment If not in fashion, the possibility of having the property redesigned, recut, or reset should be reported in the appraisal. Federal1040x amendment The stone's coloring, weight, cut, brilliance, and flaws should be reported and analyzed. Federal1040x amendment Sentimental personal value has no effect on FMV. Federal1040x amendment But if the jewelry was owned by a famous person, its value might increase. Federal1040x amendment Paintings, Antiques, and Other Objects of Art Your deduction for contributions of paintings, antiques, and other objects of art, should be supported by a written appraisal from a qualified and reputable source, unless the deduction is $5,000 or less. Federal1040x amendment Examples of information that should be included in appraisals of art objects—paintings in particular—are found later under Qualified Appraisal. Federal1040x amendment Art valued at $20,000 or more. Federal1040x amendment   If you claim a deduction of $20,000 or more for donations of art, you must attach a complete copy of the signed appraisal to your return. Federal1040x amendment For individual objects valued at $20,000 or more, a photograph of a size and quality fully showing the object, preferably an 8 x 10 inch color photograph or a color transparency no smaller than 4 x 5 inches, must be provided upon request. Federal1040x amendment Art valued at $50,000 or more. Federal1040x amendment   If you donate an item of art that has been appraised at $50,000 or more, you can request a Statement of Value for that item from the IRS. Federal1040x amendment You must request the statement before filing the tax return that reports the donation. Federal1040x amendment Your request must include the following. Federal1040x amendment A copy of a qualified appraisal of the item. Federal1040x amendment See Qualified Appraisal, later. Federal1040x amendment A $2,500 check or money order payable to the Internal Revenue Service for the user fee that applies to your request regarding one, two, or three items of art. Federal1040x amendment Add $250 for each item in excess of three. Federal1040x amendment A completed Form 8283, Section B. Federal1040x amendment The location of the IRS territory that has examination responsibility for your return. Federal1040x amendment If your request lacks essential information, you will be notified and given 30 days to provide the missing information. Federal1040x amendment   Send your request to: Internal Revenue Service Attention: Art Appraisal (C:AP:ART) P. Federal1040x amendment O. Federal1040x amendment Box 27720 McPherson Station Washington, DC 20038 Refunds. Federal1040x amendment   You can withdraw your request for a Statement of Value at any time before it is issued. Federal1040x amendment However, the IRS will not refund the user fee if you do. Federal1040x amendment   If the IRS declines to issue a Statement of Value in the interest of efficient tax administration, the IRS will refund the user fee. Federal1040x amendment Authenticity. Federal1040x amendment   The authenticity of the donated art must be determined by the appraiser. Federal1040x amendment Physical condition. Federal1040x amendment   Important items in the valuation of antiques and art are physical condition and extent of restoration. Federal1040x amendment These have a significant effect on the value and must be fully reported in an appraisal. Federal1040x amendment An antique in damaged condition, or lacking the “original brasses,” may be worth much less than a similar piece in excellent condition. Federal1040x amendment Art appraisers. Federal1040x amendment   More weight will usually be given to an appraisal prepared by an individual specializing in the kind and price range of the art being appraised. Federal1040x amendment Certain art dealers or appraisers specialize, for example, in old masters, modern art, bronze sculpture, etc. Federal1040x amendment Their opinions on the authenticity and desirability of such art would usually be given more weight than the opinions of more generalized art dealers or appraisers. Federal1040x amendment They can report more recent comparable sales to support their opinion. Federal1040x amendment   To identify and locate experts on unique, specialized items or collections, you may wish to use the current Official Museum Directory of the American Association of Museums. Federal1040x amendment It lists museums both by state and by category. Federal1040x amendment   To help you locate a qualified appraiser for your donation, you may wish to ask an art historian at a nearby college or the director or curator of a local museum. Federal1040x amendment The Yellow Pages often list specialized art and antique dealers, auctioneers, and art appraisers. Federal1040x amendment You may be able to find a qualified appraiser on the Internet. Federal1040x amendment You may also contact associations of dealers for guidance. Federal1040x amendment Collections Since many kinds of hobby collections may be the subject of a charitable donation, it is not possible to discuss all of the possible collectibles in this publication. Federal1040x amendment Most common are rare books, autographs, sports memorabilia, dolls, manuscripts, stamps, coins, guns, phonograph records, and natural history items. Federal1040x amendment Many of the elements of valuation that apply to paintings and other objects of art, discussed earlier, also apply to miscellaneous collections. Federal1040x amendment Reference material. Federal1040x amendment   Publications available to help you determine the value of many kinds of collections include catalogs, dealers' price lists, and specialized hobby periodicals. Federal1040x amendment When using one of these price guides, you must use the current edition at the date of contribution. Federal1040x amendment However, these sources are not always reliable indicators of FMV and should be supported by other evidence. Federal1040x amendment   For example, a dealer may sell an item for much less than is shown on a price list, particularly after the item has remained unsold for a long time. Federal1040x amendment The price an item sold for in an auction may have been the result of a rigged sale or a mere bidding duel. Federal1040x amendment The appraiser must analyze the reference material, and recognize and make adjustments for misleading entries. Federal1040x amendment If you are donating a valuable collection, you should get an appraisal. Federal1040x amendment If your donation appears to be of little value, you may be able to make a satisfactory valuation using reference materials available at a state, city, college, or museum library. Federal1040x amendment Stamp collections. Federal1040x amendment   Most libraries have catalogs or other books that report the publisher's estimate of values. Federal1040x amendment Generally, two price levels are shown for each stamp: the price postmarked and the price not postmarked. Federal1040x amendment Stamp dealers generally know the value of their merchandise and are able to prepare satisfactory appraisals of valuable collections. Federal1040x amendment Coin collections. Federal1040x amendment   Many catalogs and other reference materials show the writer's or publisher's opinion of the value of coins on or near the date of the publication. Federal1040x amendment Like many other collectors' items, the value of a coin depends on the demand for it, its age, and its rarity. Federal1040x amendment Another important factor is the coin's condition. Federal1040x amendment For example, there is a great difference in the value of a coin that is in mint condition and a similar coin that is only in good condition. Federal1040x amendment   Catalogs usually establish a category for coins, based on their physical condition—mint or uncirculated, extremely fine, very fine, fine, very good, good, fair, or poor—with a different valuation for each category. Federal1040x amendment Books. Federal1040x amendment   The value of books is usually determined by selecting comparable sales and adjusting the prices according to the differences between the comparable sales and the item being evaluated. Federal1040x amendment This is difficult to do and, except for a collection of little value, should be done by a specialized appraiser. Federal1040x amendment Within the general category of literary property, there are dealers who specialize in certain areas, such as Americana, foreign imports, Bibles, and scientific books. Federal1040x amendment Modest value of collection. Federal1040x amendment   If the collection you are donating is of modest value, not requiring a written appraisal, the following information may help you in determining the FMV. Federal1040x amendment   A book that is very old, or very rare, is not necessarily valuable. Federal1040x amendment There are many books that are very old or rare, but that have little or no market value. Federal1040x amendment Condition of book. Federal1040x amendment   The condition of a book may have a great influence on its value. Federal1040x amendment Collectors are interested in items that are in fine, or at least good, condition. Federal1040x amendment When a book has a missing page, a loose binding, tears, stains, or is otherwise in poor condition, its value is greatly lowered. Federal1040x amendment Other factors. Federal1040x amendment   Some other factors in the valuation of a book are the kind of binding (leather, cloth, paper), page edges, and illustrations (drawings and photographs). Federal1040x amendment Collectors usually want first editions of books. Federal1040x amendment However, because of changes or additions, other editions are sometimes worth as much as, or more than, the first edition. Federal1040x amendment Manuscripts, autographs, diaries, and similar items. Federal1040x amendment   When these items are handwritten, or at least signed by famous people, they are often in demand and are valuable. Federal1040x amendment The writings of unknowns also may be of value if they are of unusual historical or literary importance. Federal1040x amendment Determining the value of such material is difficult. Federal1040x amendment For example, there may be a great difference in value between two diaries that were kept by a famous person—one kept during childhood and the other during a later period in his or her life. Federal1040x amendment The appraiser determines a value in these cases by applying knowledge and judgment to such factors as comparable sales and conditions. Federal1040x amendment Signatures. Federal1040x amendment   Signatures, or sets of signatures, that were cut from letters or other papers usually have little or no value. Federal1040x amendment But complete sets of the signatures of U. Federal1040x amendment S. Federal1040x amendment presidents are in demand. Federal1040x amendment Cars, Boats, and Aircraft If you donate a car, a boat, or an aircraft to a charitable organization, its FMV must be determined. Federal1040x amendment Certain commercial firms and trade organizations publish monthly or seasonal guides for different regions of the country, containing complete dealer sale prices or dealer average prices for recent model years. Federal1040x amendment Prices are reported for each make, model, and year. Federal1040x amendment These guides also provide estimates for adjusting for unusual equipment, unusual mileage, and physical condition. Federal1040x amendment The prices are not “official,” and these publications are not considered an appraisal of any specific donated property. Federal1040x amendment But they do provide clues for making an appraisal and suggest relative prices for comparison with current sales and offerings in your area. Federal1040x amendment These publications are sometimes available from public libraries or at a bank, credit union, or finance company. Federal1040x amendment You can also find pricing information about used cars on the Internet. Federal1040x amendment An acceptable measure of the FMV of a donated car, boat, or airplane is an amount not in excess of the price listed in a used vehicle pricing guide for a private party sale, not the dealer retail value, of a similar vehicle. Federal1040x amendment However, the FMV may be less than that amount if the vehicle has engine trouble, body damage, high mileage, or any type of excessive wear. Federal1040x amendment The FMV of a donated vehicle is the same as the price listed in a used vehicle pricing guide for a private party sale only if the guide lists a sales price for a vehicle that is the same make, model, and year, sold in the same area, in the same condition, with the same or similar options or accessories, and with the same or similar warranties as the donated vehicle. Federal1040x amendment Example. Federal1040x amendment You donate a used car in poor condition to a local high school for use by students studying car repair. Federal1040x amendment A used car guide shows the dealer retail value for this type of car in poor condition is $1,600. Federal1040x amendment However, the guide shows the price for a private party sale of the car is only $750. Federal1040x amendment The FMV of the car is considered to be no more than $750. Federal1040x amendment Boats. Federal1040x amendment   Except for inexpensive small boats, the valuation of boats should be based on an appraisal by a marine surveyor because the physical condition is so critical to the value. Federal1040x amendment More information. Federal1040x amendment   Your deduction for a donated car, boat, or airplane generally is limited to the gross proceeds from its sale by the qualified organization. Federal1040x amendment This rule applies if the claimed value of the donated vehicle is more than $500. Federal1040x amendment In certain cases, you can deduct the vehicle's FMV. Federal1040x amendment For details, see Publication 526. Federal1040x amendment Inventory If you donate any inventory item to a charitable organization, the amount of your deductible contribution generally is the FMV of the item, minus any gain you would have realized if you had sold the item at its FMV on the date of the gift. Federal1040x amendment For more information, see Publication 526. Federal1040x amendment Patents To determine the FMV of a patent, you must take into account, among other factors: Whether the patented technology has been made obsolete by other technology; Any restrictions on the donee's use of, or ability to transfer, the patented technology; and The length of time remaining before the patent expires. Federal1040x amendment However, your deduction for a donation of a patent or other intellectual property is its FMV, minus any gain you would have realized if you had sold the property at its FMV on the date of the gift. Federal1040x amendment Generally, this means your deduction is the lesser of the property's FMV or its basis. Federal1040x amendment For details, see Publication 526. Federal1040x amendment Stocks and Bonds The value of stocks and bonds is the FMV of a share or bond on the valuation date. Federal1040x amendment See Date of contribution, earlier, under What Is Fair Market Value (FMV). Federal1040x amendment Selling prices on valuation date. Federal1040x amendment   If there is an active market for the contributed stocks or bonds on a stock exchange, in an over-the-counter market, or elsewhere, the FMV of each share or bond is the average price between the highest and lowest quoted selling prices on the valuation date. Federal1040x amendment For example, if the highest selling price for a share was $11, and the lowest $9, the average price is $10. Federal1040x amendment You get the average price by adding $11 and $9 and dividing the sum by 2. Federal1040x amendment No sales on valuation date. Federal1040x amendment   If there were no sales on the valuation date, but there were sales within a reasonable period before and after the valuation date, you determine FMV by taking the average price between the highest and lowest sales prices on the nearest date before and on the nearest date after the valuation date. Federal1040x amendment Then you weight these averages in inverse order by the respective number of trading days between the selling dates and the valuation date. Federal1040x amendment Example. Federal1040x amendment   On the day you gave stock to a qualified organization, there were no sales of the stock. Federal1040x amendment Sales of the stock nearest the valuation date took place two trading days before the valuation date at an average selling price of $10 and three trading days after the valuation date at an average selling price of $15. Federal1040x amendment The FMV on the valuation date was $12, figured as follows: [(3 x $10) + (2 x $15)] ÷ 5 = $12 Listings on more than one stock exchange. Federal1040x amendment   Stocks or bonds listed on more than one stock exchange are valued based on the prices of the exchange on which they are principally dealt. Federal1040x amendment This applies if these prices are published in a generally available listing or publication of general circulation. Federal1040x amendment If this is not applicable, and the stocks or bonds are reported on a composite listing of combined exchanges in a publication of general circulation, use the composite list. Federal1040x amendment See also Unavailable prices or closely held corporation, later. Federal1040x amendment Bid and asked prices on valuation date. Federal1040x amendment   If there were no sales within a reasonable period before and after the valuation date, the FMV is the average price between the bona fide bid and asked prices on the valuation date. Federal1040x amendment Example. Federal1040x amendment Although there were no sales of Blue Corporation stock on the valuation date, bona fide bid and asked prices were available on that date of $14 and $16, respectively. Federal1040x amendment The FMV is $15, the average price between the bid and asked prices. Federal1040x amendment No prices on valuation date. Federal1040x amendment   If there were no prices available on the valuation date, you determine FMV by taking the average prices between the bona fide bid and asked prices on the closest trading date before and after the valuation date. Federal1040x amendment Both dates must be within a reasonable period. Federal1040x amendment Then you weight these averages in inverse order by the respective number of trading days between the bid and asked dates and the valuation date. Federal1040x amendment Example. Federal1040x amendment On the day you gave stock to a qualified organization, no prices were available. Federal1040x amendment Bona fide bid and asked prices 3 days before the valuation date were $10 and 2 days after the valuation date were $15. Federal1040x amendment The FMV on the valuation date is $13, figured as follows: [(2 x $10) + (3 x $15)] ÷ 5 = $13 Prices only before or after valuation date, but not both. Federal1040x amendment   If no selling prices or bona fide bid and asked prices are available on a date within a reasonable period before the valuation date, but are available on a date within a reasonable period after the valuation date, or vice versa, then the average price between the highest and lowest of such available prices may be treated as the value. Federal1040x amendment Large blocks of stock. Federal1040x amendment   When a large block of stock is put on the market, it may lower the selling price of the stock if the supply is greater than the demand. Federal1040x amendment On the other hand, market forces may exist that will afford higher prices for large blocks of stock. Federal1040x amendment Because of the many factors to be considered, determining the value of large blocks of stock usually requires the help of experts specializing in underwriting large quantities of securities, or in trading in the securities of the industry of which the particular company is a part. Federal1040x amendment Unavailable prices or closely held corporation. Federal1040x amendment   If selling prices or bid and asked prices are not available, or if securities of a closely held corporation are involved, determine the FMV by considering the following factors. Federal1040x amendment For bonds, the soundness of the security, the interest yield, the date of maturity, and other relevant factors. Federal1040x amendment For shares of stock, the company's net worth, prospective earning power and dividend-paying capacity, and other relevant factors. Federal1040x amendment Other factors. Federal1040x amendment   Other relevant factors include: The nature and history of the business, especially its recent history, The goodwill of the business, The economic outlook in the particular industry, The company's position in the industry, its competitors, and its management, and The value of securities of corporations engaged in the same or similar business. Federal1040x amendment For preferred stock, the most important factors are its yield, dividend coverage, and protection of its liquidation preference. Federal1040x amendment   You should keep complete financial and other information on which the valuation is based. Federal1040x amendment This includes copies of reports of examinations of the company made by accountants, engineers, or any technical experts on or close to the valuation date. Federal1040x amendment Restricted securities. Federal1040x amendment   Some classes of stock cannot be traded publicly because of restrictions imposed by the Securities and Exchange Commission, or by the corporate charter or a trust agreement. Federal1040x amendment These restricted securities usually trade at a discount in relation to freely traded securities. Federal1040x amendment   To arrive at the FMV of restricted securities, factors that you must consider include the resale provisions found in the restriction agreements, the relative negotiating strengths of the buyer and seller, and the market experience of freely traded securities of the same class as the restricted securities. Federal1040x amendment Real Estate Because each piece of real estate is unique and its valuation is complicated, a detailed appraisal by a professional appraiser is necessary. Federal1040x amendment The appraiser must be thoroughly trained in the application of appraisal principles and theory. Federal1040x amendment In some instances the opinions of equally qualified appraisers may carry unequal weight, such as when one appraiser has a better knowledge of local conditions. Federal1040x amendment The appraisal report must contain a complete description of the property, such as street address, legal description, and lot and block number, as well as physical features, condition, and dimensions. Federal1040x amendment The use to which the property is put, zoning and permitted uses, and its potential use for other higher and better uses are also relevant. Federal1040x amendment In general, there are three main approaches to the valuation of real estate. Federal1040x amendment An appraisal may require the combined use of two or three methods rather than one method only. Federal1040x amendment 1. Federal1040x amendment Comparable Sales The comparable sales method compares the donated property with several similar properties that have been sold. Federal1040x amendment The selling prices, after adjustments for differences in date of sale, size, condition, and location, would then indicate the estimated FMV of the donated property. Federal1040x amendment If the comparable sales method is used to determine the value of unimproved real property (land without significant buildings, structures, or any other improvements that add to its value), the appraiser should consider the following factors when comparing the potential comparable property and the donated property: Location, size, and zoning or use restrictions, Accessibility and road frontage, and available utilities and water rights, Riparian rights (right of access to and use of the water by owners of land on the bank of a river) and existing easements, rights-of-way, leases, etc. Federal1040x amendment , Soil characteristics, vegetative cover, and status of mineral rights, and Other factors affecting value. Federal1040x amendment For each comparable sale, the appraisal must include the names of the buyer and seller, the deed book and page number, the date of sale and selling price, a property description, the amount and terms of mortgages, property surveys, the assessed value, the tax rate, and the assessor's appraised FMV. Federal1040x amendment The comparable selling prices must be adjusted to account for differences between the sale property and the donated property. Federal1040x amendment Because differences of opinion may arise between appraisers as to the degree of comparability and the amount of the adjustment considered necessary for comparison purposes, an appraiser should document each item of adjustment. Federal1040x amendment Only comparable sales having the least adjustments in terms of items and/or total dollar adjustments should be considered as comparable to the donated property. Federal1040x amendment 2. Federal1040x amendment Capitalization of Income This method capitalizes the net income from the property at a rate that represents a fair return on the particular investment at the particular time, considering the risks involved. Federal1040x amendment The key elements are the determination of the income to be capitalized and the rate of capitalization. Federal1040x amendment 3. Federal1040x amendment Replacement Cost New or Reproduction Cost Minus Observed Depreciation This method, used alone, usually does not result in a determination of FMV. Federal1040x amendment Instead, it generally tends to set the upper limit of value, particularly in periods of rising costs, because it is reasonable to assume that an informed buyer will not pay more for the real estate than it would cost to reproduce a similar property. Federal1040x amendment Of course, this reasoning does not apply if a similar property cannot be created because of location, unusual construction, or some other reason. Federal1040x amendment Generally, this method serves to support the value determined from other methods. Federal1040x amendment When the replacement cost method is applied to improved realty, the land and improvements are valued separately. Federal1040x amendment The replacement cost of a building is figured by considering the materials, the quality of workmanship, and the number of square feet or cubic feet in the building. Federal1040x amendment This cost represents the total cost of labor and material, overhead, and profit. Federal1040x amendment After the replacement cost has been figured, consideration must be given to the following factors: Physical deterioration—the wear and tear on the building itself, Functional obsolescence—usually in older buildings with, for example, inadequate lighting, plumbing, or heating, small rooms, or a poor floor plan, and Economic obsolescence—outside forces causing the whole area to become less desirable. Federal1040x amendment Interest in a Business The FMV of any interest in a business, whether a sole proprietorship or a partnership, is the amount that a willing buyer would pay for the interest to a willing seller after consideration of all relevant factors. Federal1040x amendment The relevant factors to be considered in valuing the business are: The FMV of the assets of the business, The demonstrated earnings capacity of the business, based on a review of past and current earnings, and The other factors used in evaluating corporate stock, if they apply. Federal1040x amendment The value of the goodwill of the business should also be taken into consideration. Federal1040x amendment You should keep complete financial and other information on which you base the valuation. Federal1040x amendment This includes copies of reports of examinations of the business made by accountants, engineers, or any technical experts on or close to the valuation date. Federal1040x amendment Annuities, Interests for Life or Terms of Years, Remainders, and Reversions The value of these kinds of property is their present value, except in the case of annuities under contracts issued by companies regularly engaged in their sale. Federal1040x amendment The valuation of these commercial annuity contracts and of insurance policies is discussed later under Certain Life Insurance and Annuity Contracts. Federal1040x amendment To determine present value, you must know the applicable interest rate and use actuarial tables. Federal1040x amendment Interest rate. Federal1040x amendment   The applicable interest rate varies. Federal1040x amendment It is announced monthly in a news release and published in the Internal Revenue Bulletin as a Revenue Ruling. Federal1040x amendment The interest rate to use is under the heading “Rate Under Section 7520” for a given month and year. Federal1040x amendment You can call the IRS office at 1-800-829-1040 to obtain this rate. Federal1040x amendment Actuarial tables. Federal1040x amendment   You need to refer to actuarial tables to determine a qualified interest in the form of an annuity, any interest for life or a term of years, or any remainder interest to a charitable organization. Federal1040x amendment   Use the valuation tables set forth in IRS Publications 1457, Actuarial Values (Book Aleph), and 1458, Actuarial Values (Book Beth). Federal1040x amendment Both of these publications provide tables containing actuarial factors to be used in determining the present value of an annuity, an interest for life or for a term of years, or a remainder or reversionary interest. Federal1040x amendment For qualified charitable transfers, you can use the factor for the month in which you made the contribution or for either of the 2 months preceding that month. Federal1040x amendment   Publication 1457 also contains actuarial factors for computing the value of a remainder interest in a charitable remainder annuity trust and a pooled income fund. Federal1040x amendment Publication 1458 contains the factors for valuing the remainder interest in a charitable remainder unitrust. Federal1040x amendment You can download Publications 1457 and 1458 from www. Federal1040x amendment irs. Federal1040x amendment gov. Federal1040x amendment In addition, they are available for purchase via the website of the U. Federal1040x amendment S. Federal1040x amendment Government Printing Office, by phone at (202) 512-1800, or by mail from the: Superintendent of Documents P. Federal1040x amendment O. Federal1040x amendment Box 371954 Pittsburgh, PA 15250-7954 Tables containing actuarial factors for transfers to pooled income funds may also be found in Income Tax Regulation 1. Federal1040x amendment 642(c)-6(e)(6), transfers to charitable remainder unitrusts in Regulation 1. Federal1040x amendment 664-4(e), and other transfers in Regulation 20. Federal1040x amendment 2031-7(d)(6). Federal1040x amendment Special factors. Federal1040x amendment   If you need a special factor for an actual transaction, you can request a letter ruling. Federal1040x amendment Be sure to include the date of birth of each person the duration of whose life may affect the value of the interest. Federal1040x amendment Also include copies of the relevant instruments. Federal1040x amendment IRS charges a user fee for providing special factors. Federal1040x amendment   For more information about requesting a ruling, see Revenue Procedure 2006-1 (or annual update), 2006-1 I. Federal1040x amendment R. Federal1040x amendment B. Federal1040x amendment 1. Federal1040x amendment Revenue Procedure 2006-1 is available at www. Federal1040x amendment irs. Federal1040x amendment gov/irb/2006-01_IRB/ar06. Federal1040x amendment html. Federal1040x amendment   For information on the circumstances under which a charitable deduction may be allowed for the donation of a partial interest in property not in trust, see Partial Interest in Property Not in Trust, later. Federal1040x amendment Certain Life Insurance and Annuity Contracts The value of an annuity contract or a life insurance policy issued by a company regularly engaged in the sale of such contracts or policies is the amount that company would charge for a comparable contract. Federal1040x amendment But if the donee of a life insurance policy may reasonably be expected to cash the policy rather than hold it as an investment, then the FMV is the cash surrender value rather than the replacement cost. Federal1040x amendment If an annuity is payable under a combination annuity contract and life insurance policy (for example, a retirement income policy with a death benefit) and there was no insurance element when it was transferred to the charity, the policy is treated as an annuity contract. Federal1040x amendment Partial Interest in Property Not in Trust Generally, no deduction is allowed for a charitable contribution, not made in trust, of less than your entire interest in property. Federal1040x amendment However, this does not apply to a transfer of less than your entire interest if it is a transfer of: A remainder interest in your personal residence or farm, An undivided part of your entire interest in property, or A qualified conservation contribution. Federal1040x amendment Remainder Interest in Real Property The amount of the deduction for a donation of a remainder interest in real property is the FMV of the remainder interest at the time of the contribution. Federal1040x amendment To determine this value, you must know the FMV of the property on the date of the contribution. Federal1040x amendment Multiply this value by the appropriate factor. Federal1040x amendment Publications 1457 and 1458 contain these factors. Federal1040x amendment You must make an adjustment for depreciation or depletion using the factors shown in Publication 1459, Actuarial Values (Book Gimel). Federal1040x amendment You can use the factors for the month in which you made the contribution or for either of the two months preceding that month. Federal1040x amendment See the earlier discussion on Annuities, Interests for Life or Terms of Years, Remainders, and Reversions. Federal1040x amendment You can download Publication 1459 from www. Federal1040x amendment irs. Federal1040x amendment gov. Federal1040x amendment For this purpose, the term “depreciable property” means any property subject to wear and tear or obsolescence, even if not used in a trade or business or for the production of income. Federal1040x amendment If the remainder interest includes both depreciable and nondepreciable property, for example a house and land, the FMV must be allocated between each kind of property at the time of the contribution. Federal1040x amendment This rule also applies to a gift of a remainder interest that includes property that is part depletable and part not depletable. Federal1040x amendment Take into account depreciation or depletion only for the property that is subject to depreciation or depletion. Federal1040x amendment For more information, see section 1. Federal1040x amendment 170A-12 of the Income Tax Regulations. Federal1040x amendment Undivided Part of Your Entire Interest A contribution of an undivided part of your entire interest in property must consist of a part of each and every substantial interest or right you own in the property. Federal1040x amendment It must extend over the entire term of your interest in the property. Federal1040x amendment For example, you are entitled to the income from certain property for your life (life estate) and you contribute 20% of that life estate to a qualified organization. Federal1040x amendment You can claim a deduction for the contribution if you do not have any other interest in the property. Federal1040x amendment To figure the value of a contribution involving a partial interest, see Publication 1457. Federal1040x amendment If the only interest you own in real property is a remainder interest and you transfer part of that interest to a qualified organization, see the previous discussion on valuation of a remainder interest in real property. Federal1040x amendment Qualified Conservation Contribution A qualified conservation contribution is a contribution of a qualified real property interest to a qualified organization to be used only for conservation purposes. Federal1040x amendment Qualified organization. Federal1040x amendment   For purposes of a qualified conservation contribution, a qualified organization is: A governmental unit, A publicly supported charitable, religious, scientific, literary, educational, etc. Federal1040x amendment , organization, or An organization that is controlled by, and operated for the exclusive benefit of, a governmental unit or a publicly supported charity. Federal1040x amendment The organization also must have a commitment to protect the conservation purposes of the donation and must have the resources to enforce the restrictions. Federal1040x amendment Conservation purposes. Federal1040x amendment   Your contribution must be made only for one of the following conservation purposes. Federal1040x amendment Preserving land areas for outdoor recreation by, or for the education of, the general public. Federal1040x amendment Protecting a relatively natural habitat of fish, wildlife, or plants, or a similar ecosystem. Federal1040x amendment Preserving open space, including farmland and forest land, if it yields a significant public benefit. Federal1040x amendment It must be either for the scenic enjoyment of the general public or under a clearly defined federal, state, or local governmental conservation policy. Federal1040x amendment Preserving a historically important land area or a certified historic structure. Federal1040x amendment There must be some visual public access to the property. Federal1040x amendment Factors used in determining the type and amount of public access required include the historical significance of the property, the remoteness or accessibility of the site, and the extent to which intrusions on the privacy of individuals living on the property would be unreasonable. Federal1040x amendment Building in registered historic district. Federal1040x amendment   A contribution after July 25, 2006, of a qualified real property interest that is an easement or other restriction on the exterior of a building in a registered historic district is deductible only if it meets all of the following three conditions. Federal1040x amendment The restriction must preserve the entire exterior of the building and must prohibit any change to the exterior of the building that is inconsistent with its historical character. Federal1040x amendment You and the organization receiving the contribution must enter into a written agreement certifying, that the organization is a qualified organization and that it has the resources and commitment to maintain the property as donated. Federal1040x amendment If you make the contribution in a tax year beginning after August 17, 2006, you must include with your return: A qualified appraisal, Photographs of the building's entire exterior, and A description of all restrictions on development of the building, such as zoning laws and restrictive covenants. Federal1040x amendment   If you make this type of contribution after February 12, 2007, and claim a deduction of more than $10,000, your deduction will not be allowed unless you pay a $500 filing fee. Federal1040x amendment See Form 8283-V, Payment Voucher for Filing Fee Under Section 170(f)(13), and its instructions. Federal1040x amendment Qualified real property interest. Federal1040x amendment   This is any of the following interests in real property. Federal1040x amendment Your entire interest in real estate other than a mineral interest (subsurface oil, gas, or other minerals, and the right of access to these minerals). Federal1040x amendment A remainder interest. Federal1040x amendment A restriction (granted in perpetuity) on the use that may be made of the real property. Federal1040x amendment Valuation. Federal1040x amendment   A qualified real property interest described in (1) should be valued in a manner that is consistent with the type of interest transferred. Federal1040x amendment If you transferred all the interest in the property, the FMV of the property is the amount of the contribution. Federal1040x amendment If you do not transfer the mineral interest, the FMV of the surface rights in the property is the amount of the contribution. Federal1040x amendment   If you owned only a remainder interest or an income interest (life estate), see Undivided Part of Your Entire Interest, earlier. Federal1040x amendment If you owned the entire property but transferred only a remainder interest (item (2)), see Remainder Interest in Real Property, earlier. Federal1040x amendment   In determining the value of restrictions, you should take into account the selling price in arm's-length transactions of other properties that have comparable restrictions. Federal1040x amendment If there are no comparable sales, the restrictions are valued indirectly as the difference between the FMVs of the property involved before and after the grant of the restriction. Federal1040x amendment   The FMV of the property before contribution of the restriction should take into account not only current use but the likelihood that the property, without the restriction, would be developed. Federal1040x amendment You should also consider any zoning, conservation, or historical preservation laws that would restrict development. Federal1040x amendment Granting an easement may increase, rather than reduce, the value of property, and in such a situation no deduction would be allowed. Federal1040x amendment Example. Federal1040x amendment   You own 10 acres of farmland. Federal1040x amendment Similar land in the area has an FMV of $2,000 an acre. Federal1040x amendment However, land in the general area that is restricted solely to farm use has an FMV of $1,500 an acre. Federal1040x amendment Your county wants to preserve open space and prevent further development in your area. Federal1040x amendment   You grant to the county an enforceable open space easement in perpetuity on 8 of the 10 acres, restricting its use to farmland. Federal1040x amendment The value of this easement is $4,000, determined as follows: FMV of the property before granting easement:   $2,000 × 10 acres $20,000 FMV of the property after granting easement:   $1,500 × 8 acres $12,000   $2,000 × 2 acres 4,000 16,000 Value of easement   $4,000   If you later transfer in fee your remaining interest in the 8 acres to another qualified organization, the FMV of your remaining interest is the FMV of the 8 acres reduced by the FMV of the easement granted to the first organization. Federal1040x amendment More information. Federal1040x amendment   For more information about qualified conservation contributions, see Publication 526. Federal1040x amendment Appraisals Appraisals are not necessary for items of property for which you claim a deduction of $5,000 or less. Federal1040x amendment (There is one exception, described next, for certain clothing and household items. Federal1040x amendment ) However, you generally will need an appraisal for donated property for which you claim a deduction of more than $5,000. Federal1040x amendment There are exceptions. Federal1040x amendment See Deductions of More Than $5,000, later. Federal1040x amendment The weight given an appraisal depends on the completeness of the report, the qualifications of the appraiser, and the appraiser's demonstrated knowledge of the donated property. Federal1040x amendment An appraisal must give all the facts on which to base an intelligent judgment of the value of the property. Federal1040x amendment The appraisal will not be given much weight if: All the factors that apply are not considered, The opinion is not supported with facts, such as purchase price and comparable sales, or The opinion is not consistent with known facts. Federal1040x amendment The appraiser's opinion is never more valid than the facts on which it is based; without these facts it is simply a guess. Federal1040x amendment The opinion of a person claiming to be an expert is not binding on the Internal Revenue Service. Federal1040x amendment All facts associated with the donation must be considered. Federal1040x amendment Deduction over $500 for certain clothing or household items. Federal1040x amendment   You must include with your return a qualified appraisal of any single item of clothing or any household item that is not in good used condition or better, that you donated after August 17, 2006, and for which you deduct more than $500. Federal1040x amendment See Household Goods and Used Clothing, earlier. Federal1040x amendment Cost of appraisals. Federal1040x amendment   You may not take a charitable contribution deduction for fees you pay for appraisals of your donated property. Federal1040x amendment However, these fees may qualify as a miscellaneous deduction, subject to the 2% limit, on Schedule A (Form 1040) if paid to determine the amount allowable as a charitable contribution. Federal1040x amendment Deductions of More Than $5,000 Generally, if the claimed deduction for an item or group of similar items of donated property is more than $5,000, you must get a qualified appraisal made by a qualified appraiser, and you must attach Section B of Form 8283 to your tax return. Federal1040x amendment There are exceptions, discussed later. Federal1040x amendment You should keep the appraiser's report with your written records. Federal1040x amendment Records are discussed in Publication 526. Federal1040x amendment The phrase “similar items” means property of the same generic category or type (whether or not donated to the same donee), such as stamp collections, coin collections, lithographs, paintings, photographs, books, nonpublicly traded stock, nonpublicly traded securities other than nonpublicly traded stock, land, buildings, clothing, jewelry, furniture, electronic equipment, household appliances, toys, everyday kitchenware, china, crystal, or silver. Federal1040x amendment For example, if you give books to three schools and you deduct $2,000, $2,500, and $900, respectively, your claimed deduction is more than $5,000 for these books. Federal1040x amendment You must get a qualified appraisal of the books and for each school you must attach a fully completed Form 8283, Section B, to your tax return. Federal1040x amendment Exceptions. Federal1040x amendment   You do not need an appraisal if the property is: Nonpublicly traded stock of $10,000 or less, A vehicle (including a car, boat, or airplane) for which your deduction is limited to the gross proceeds from its sale, Qualified intellectual property, such as a patent, Certain publicly traded securities described next, Inventory and other property donated by a corporation that are “qualified contributions” for the care of the ill, the needy, or infants, within the meaning of section 170(e)(3)(A) of the Internal Revenue Code, or Stock in trade, inventory, or property held primarily for sale to customers in the ordinary course of your trade or business. Federal1040x amendment   Although an appraisal is not required for the types of property just listed, you must provide certain information about a donation of any of these types of property on Form 8283. Federal1040x amendment Publicly traded securities. Federal1040x amendment   Even if your claimed deduction is more than $5,000, neither a qualified appraisal nor Section B of Form 8283 is required for publicly traded securities that are: Listed on a stock exchange in which quotations are published on a daily basis, Regularly traded in a national or regional over-the-counter market for which published quotations are available, or Shares of an open-end investment company (mutual fund) for which quotations are published on a daily basis in a newspaper of general circulation throughout the United States. Federal1040x amendment Publicly traded securities that meet these requirements must be reported on Form 8283, Section A. Federal1040x amendment   A qualified appraisal is not required, but Form 8283, Section B, Parts I and IV, must be completed, for an issue of a security that does not meet the requirements just listed but does meet these requirements: The issue is regularly traded during the computation period (defined later) in a market for which there is an “interdealer quotation system” (defined later), The issuer or agent computes the “average trading price” (defined later) for the same issue for the computation period, The average trading price and total volume of the issue during the computation period are published in a newspaper of general circulation throughout the United States, not later than the last day of the month following the end of the calendar quarter in which the computation period ends, The issuer or agent keeps books and records that list for each transaction during the computation period the date of settlement of the transaction, the name and address of the broker or dealer making the market in which the transaction occurred, and the trading price and volume, and The issuer or agent permits the Internal Revenue Service to review the books and records described in item (4) with respect to transactions during the computation period upon receiving reasonable notice. Federal1040x amendment   An interdealer quotation system is any system of general circulation to brokers and dealers that regularly disseminates quotations of obligations by two or more identified brokers or dealers who are not related to either the issuer or agent who computes the average trading price of the security. Federal1040x amendment A quotation sheet prepared and distributed by a broker or dealer in the regular course of business and containing only quotations of that broker or dealer is not an interdealer quotation system. Federal1040x amendment   The average trading price is the average price of all transactions (weighted by volume), other than original issue or redemption transactions, conducted through a United States office of a broker or dealer who maintains a market in the issue of the security during the computation period. Federal1040x amendment Bid and asked quotations are not taken into account. Federal1040x amendment   The computation period is weekly during October through December and monthly during January through September. Federal1040x amendment The weekly computation periods during October through December begin with the first Monday in October and end with the first Sunday following the last Monday in December. Federal1040x amendment Nonpublicly traded stock. Federal1040x amendment   If you contribute nonpublicly traded stock, for which you claim a deduction of $10,000 or less, a qualified appraisal is not required. Federal1040x amendment However, you must attach Form 8283 to your tax return, with Section B, Parts I and IV, completed. Federal1040x amendment Deductions of More Than $500,000 If you claim a deduction of more than $500,000 for a donation of property, you must attach a qualified appraisal of the property to your return. Federal1040x amendment This does not apply to contributions of cash, inventory, publicly traded stock, or intellectual property. Federal1040x amendment If you do not attach the appraisal, you cannot deduct your contribution, unless your failure to attach the appraisal is due to reasonable cause and not to willful neglect. Federal1040x amendment Qualified Appraisal Generally, if the claimed deduction for an item or group of similar items of donated property is more than $5,000, you must get a qualified appraisal made by a qualified appraiser. Federal1040x amendment You must also complete Form 8283, Section B, and attach it to your tax return. Federal1040x amendment See Deductions of More Than $5,000, earlier. Federal1040x amendment A qualified appraisal is an appraisal document that: Is made, signed, and dated by a qualified appraiser (defined later) in accordance with generally accepted appraisal standards, Meets the relevant requirements of Regulations section 1. Federal1040x amendment 170A-13(c)(3) and Notice 2006-96, 2006-46 I. Federal1040x amendment R. Federal1040x amendment B. Federal1040x amendment 902 (available at www. Federal1040x amendment irs. Federal1040x amendment gov/irb/2006-46_IRB/ar13. Federal1040x amendment html), Relates to an appraisal made not earlier than 60 days before the date of contribution of the appraised property, Does not involve a prohibited appraisal fee, and Includes certain information (covered later). Federal1040x amendment You must receive the qualified appraisal before the due date, including extensions, of the return on which a charitable contribution deduction is first claimed for the donated property. Federal1040x amendment If the deduction is first claimed on an amended return, the qualified appraisal must be received before the date on which the amended return is filed. Federal1040x amendment Form 8283, Section B, must be attached to your tax return. Federal1040x amendment Generally, you do not need to attach the qualified appraisal itself, but you should keep a copy as long as it may be relevant under the tax law. Federal1040x amendment There are four exceptions. Federal1040x amendment If you claim a deduction of $20,000 or more for donations of art, you must attach a complete copy of the appraisal. Federal1040x amendment See Paintings, Antiques, and Other Objects of Art, earlier. Federal1040x amendment If you claim a deduction of more than $500,000 for a donation of property, you must attach the appraisal. Federal1040x amendment See Deductions of More Than $500,000, earlier. Federal1040x amendment If you claim a deduction of more than $500 for an article of clothing, or a household item, that is not in good used condition or better, that you donated after August 17, 2006, you must attach the appraisal. Federal1040x amendment See Deduction over $500 for certain clothing or household items, earlier. Federal1040x amendment If you claim a deduction in a tax year beginning after August 17, 2006, for an easement or other restriction on the exterior of a building in a historic district, you must attach the appraisal. Federal1040x amendment See Building in registered historic district, earlier. Federal1040x amendment Prohibited appraisal fee. Federal1040x amendment   Generally, no part of the fee arrangement for a qualified appraisal can be based on a percentage of the appraised value of the property. Federal1040x amendment If a fee arrangement is based on what is allowed as a deduction, after Internal Revenue Service examination or otherwise, it is treated as a fee based on a percentage of appraised value. Federal1040x amendment However, appraisals are not disqualified when an otherwise prohi