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Amending Your Tax Return

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Amending Your Tax Return

Amending your tax return Publication 561 - Main Contents Table of Contents What Is Fair Market Value (FMV)?Factors. Amending your tax return Stock. Amending your tax return Options. Amending your tax return 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). Amending your tax return 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. Amending your tax return Fair market value. Amending your tax return   Fair market value (FMV) is the price that property would sell for on the open market. Amending your tax return 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. Amending your tax return If you put a restriction on the use of property you donate, the FMV must reflect that restriction. Amending your tax return Example 1. Amending your tax return 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. Amending your tax return Usually, such items are worth far less than what you paid for them. Amending your tax return Example 2. Amending your tax return 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. Amending your tax return Factors. Amending your tax return   In making and supporting the valuation of property, all factors affecting value are relevant and must be considered. Amending your tax return These include: The cost or selling price of the item, Sales of comparable properties, Replacement cost, and Opinions of experts. Amending your tax return   These factors are discussed later. Amending your tax return Also, see Table 1 for a summary of questions to ask as you consider each factor. Amending your tax return Date of contribution. Amending your tax return   Ordinarily, the date of a contribution is the date that the transfer of the property takes place. Amending your tax return Stock. Amending your tax return   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. Amending your tax return If the certificate is mailed and received through the regular mail, it is the date of mailing. Amending your tax return 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. Amending your tax return Options. Amending your tax return   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. Amending your tax return The amount of the contribution is the FMV of the property on the date the option is exercised minus the exercise price. Amending your tax return Example. Amending your tax return You grant an option to a local university, which is a qualified organization, to buy real property. Amending your tax return Under the option, the university could buy the property at any time during a 2-year period for $40,000. Amending your tax return The FMV of the property on the date the option is granted is $50,000. Amending your tax return In the following tax year, the university exercises the option. Amending your tax return The FMV of the property on the date the option is exercised is $55,000. Amending your tax return 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. Amending your tax return 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. Amending your tax return Usually it is not that simple. Amending your tax return Using such formulas, etc. Amending your tax return , seldom results in an acceptable determination of FMV. Amending your tax return There is no single formula that always applies when determining the value of property. Amending your tax return This is not to say that a valuation is only guesswork. Amending your tax return You must consider all the facts and circumstances connected with the property, such as its desirability, use, and scarcity. Amending your tax return For example, donated furniture should not be evaluated at some fixed rate such as 15% of the cost of new replacement furniture. Amending your tax return When the furniture is contributed, it may be out of style or in poor condition, therefore having little or no market value. Amending your tax return On the other hand, it may be an antique, the value of which could not be determined by using any formula. Amending your tax return 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. Amending your tax return 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. Amending your tax return 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. Amending your tax return Example. Amending your tax return Tom Morgan, who is not a dealer in gems, bought an assortment of gems for $5,000 from a promoter. Amending your tax return 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. Amending your tax return 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. Amending your tax return Tom gave the gems to a qualified charity 13 months after buying them. Amending your tax return The selling price for these gems had not changed from the date of purchase to the date he donated them to charity. Amending your tax return The best evidence of FMV depends on actual transactions and not on some artificial estimate. Amending your tax return The $5,000 charged Tom and others is, therefore, the best evidence of the maximum FMV of the gems. Amending your tax return Terms of the purchase or sale. Amending your tax return   The terms of the purchase or sale should be considered in determining FMV if they influenced the price. Amending your tax return These terms include any restrictions, understandings, or covenants limiting the use or disposition of the property. Amending your tax return Rate of increase or decrease in value. Amending your tax return   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. Amending your tax return 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. Amending your tax return Example. Amending your tax return Bill Brown bought a painting for $10,000. Amending your tax return Thirteen months later he gave it to an art museum, claiming a charitable deduction of $15,000 on his tax return. Amending your tax return 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. Amending your tax return Arm's-length offer. Amending your tax return   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. Amending your tax return To rely on an offer, you should be able to show proof of the offer and the specific amount to be paid. Amending your tax return 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. Amending your tax return Sales of Comparable Properties The sales prices of properties similar to the donated property are often important in determining the FMV. Amending your tax return The weight to be given to each sale depends on the following. Amending your tax return The degree of similarity between the property sold and the donated property. Amending your tax return The time of the sale—whether it was close to the valuation date. Amending your tax return The circumstances of the sale—whether it was at arm's-length with a knowledgeable buyer and seller, with neither having to act. Amending your tax return The conditions of the market in which the sale was made—whether unusually inflated or deflated. Amending your tax return The comparable sales method of valuing real estate is explained later under Valuation of Various Kinds of Property. Amending your tax return Example 1. Amending your tax return 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. Amending your tax return 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. Amending your tax return 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. Amending your tax return Thirteen months later she gave all the Bibles to a church that she selected from a list provided by the promoter. Amending your tax return At the time of her donation, wholesale dealers were selling similar quantities of Bibles to the general public for $10,000. Amending your tax return 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. Amending your tax return Example 2. Amending your tax return The facts are the same as in Example 1, except that the promoter gave Mary Black a second option. Amending your tax return 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. Amending your tax return The principal and interest on the note would not be due for 12 years. Amending your tax return 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. Amending your tax return 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. Amending your tax return At the time of the gift, the promoter was selling similar lots of Bibles for either $10,000 or $30,000. Amending your tax return The difference between the two prices was solely at the discretion of the buyer. Amending your tax return The promoter was a willing seller for $10,000. Amending your tax return 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. Amending your tax return Replacement Cost The cost of buying, building, or manufacturing property similar to the donated item should be considered in determining FMV. Amending your tax return However, there must be a reasonable relationship between the replacement cost and the FMV. Amending your tax return The replacement cost is the amount it would cost to replace the donated item on the valuation date. Amending your tax return Often there is no relationship between the replacement cost and the FMV. Amending your tax return If the supply of the donated property is more or less than the demand for it, the replacement cost becomes less important. Amending your tax return To determine the replacement cost of the donated property, find the “estimated replacement cost new. Amending your tax return ” Then subtract from this figure an amount for depreciation due to the physical condition and obsolescence of the donated property. Amending your tax return 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. Amending your tax return ” 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. Amending your tax return For an expert's opinion to deserve much weight, the facts must support the opinion. Amending your tax return For additional information, see Appraisals, later. Amending your tax return Table 1. Amending your tax return Factors That Affect FMV IF the factor you are considering is. Amending your tax return . Amending your tax return . Amending your tax return THEN you should ask these questions. Amending your tax return . Amending your tax return . Amending your tax return     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. Amending your tax return 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. Amending your tax return When you rely on sales of comparable property, the sales must have been made in an open market. Amending your tax return 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. Amending your tax return For example, liquidation sale prices usually do not indicate the FMV. Amending your tax return 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. Amending your tax return Selection of Comparable Sales Using sales of comparable property is an important method for determining the FMV of donated property. Amending your tax return However, the amount of weight given to a sale depends on the degree of similarity between the comparable and the donated properties. Amending your tax return 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. Amending your tax return Example. Amending your tax return You give a rare, old book to your former college. Amending your tax return The book is a third edition and is in poor condition because of a missing back cover. Amending your tax return 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. Amending your tax return Although the contents are the same, the books are not at all similar because of the different editions and their physical condition. Amending your tax return Little consideration would be given to the selling price of the $300 property by knowledgeable buyers or sellers. Amending your tax return Future Events You may not consider unexpected events happening after your donation of property in making the valuation. Amending your tax return 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. Amending your tax return Example. Amending your tax return You give farmland to a qualified charity. Amending your tax return The transfer provides that your mother will have the right to all income and full use of the property for her life. Amending your tax return 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. Amending your tax return You may not take a higher deduction because the charity received full use and possession of the land only 1 week after the transfer. Amending your tax return 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. Amending your tax return Example. Amending your tax return You give all your rights in a successful patent to your favorite charity. Amending your tax return Your records show that before the valuation date there were three stages in the patent's history of earnings. Amending your tax return First, there was rapid growth in earnings when the invention was introduced. Amending your tax return Then, there was a period of high earnings when the invention was being exploited. Amending your tax return Finally, there was a decline in earnings when competing inventions were introduced. Amending your tax return The entire history of earnings may be relevant in estimating the future earnings. Amending your tax return However, the appraiser must not rely too much on the stage of rapid growth in earnings, or of high earnings. Amending your tax return The market conditions at those times do not represent the condition of the market at the valuation date. Amending your tax return What is most significant is the trend of decline in earnings up to the valuation date. Amending your tax return For more information about donations of patents, see Patents, later. Amending your tax return Valuation of Various Kinds of Property This section contains information on determining the FMV of ordinary kinds of donated property. Amending your tax return For information on appraisals, see Appraisals, later. Amending your tax return Household Goods The FMV of used household goods, such as furniture, appliances, and linens, is usually much lower than the price paid when new. Amending your tax return Such used property may have little or no market value because of its worn condition. Amending your tax return It may be out of style or no longer useful. Amending your tax return You cannot take a deduction for household goods donated after August 17, 2006, unless they are in good used condition or better. Amending your tax return 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. Amending your tax return See Deduction over $500 for certain clothing or household items, later. Amending your tax return If the property is valuable because it is old or unique, see the discussion under Paintings, Antiques, and Other Objects of Art. Amending your tax return Used Clothing Used clothing and other personal items are usually worth far less than the price you paid for them. Amending your tax return Valuation of items of clothing does not lend itself to fixed formulas or methods. Amending your tax return 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. Amending your tax return You cannot take a deduction for clothing donated after August 17, 2006, unless it is in good used condition or better. Amending your tax return 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. Amending your tax return See Deduction over $500 for certain clothing or household items, later. Amending your tax return For valuable furs or very expensive gowns, a Form 8283 may have to be sent with your tax return. Amending your tax return 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. Amending your tax return 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. Amending your tax return If not in fashion, the possibility of having the property redesigned, recut, or reset should be reported in the appraisal. Amending your tax return The stone's coloring, weight, cut, brilliance, and flaws should be reported and analyzed. Amending your tax return Sentimental personal value has no effect on FMV. Amending your tax return But if the jewelry was owned by a famous person, its value might increase. Amending your tax return 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. Amending your tax return Examples of information that should be included in appraisals of art objects—paintings in particular—are found later under Qualified Appraisal. Amending your tax return Art valued at $20,000 or more. Amending your tax return   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. Amending your tax return 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. Amending your tax return Art valued at $50,000 or more. Amending your tax return   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. Amending your tax return You must request the statement before filing the tax return that reports the donation. Amending your tax return Your request must include the following. Amending your tax return A copy of a qualified appraisal of the item. Amending your tax return See Qualified Appraisal, later. Amending your tax return 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. Amending your tax return Add $250 for each item in excess of three. Amending your tax return A completed Form 8283, Section B. Amending your tax return The location of the IRS territory that has examination responsibility for your return. Amending your tax return If your request lacks essential information, you will be notified and given 30 days to provide the missing information. Amending your tax return   Send your request to: Internal Revenue Service Attention: Art Appraisal (C:AP:ART) P. Amending your tax return O. Amending your tax return Box 27720 McPherson Station Washington, DC 20038 Refunds. Amending your tax return   You can withdraw your request for a Statement of Value at any time before it is issued. Amending your tax return However, the IRS will not refund the user fee if you do. Amending your tax return   If the IRS declines to issue a Statement of Value in the interest of efficient tax administration, the IRS will refund the user fee. Amending your tax return Authenticity. Amending your tax return   The authenticity of the donated art must be determined by the appraiser. Amending your tax return Physical condition. Amending your tax return   Important items in the valuation of antiques and art are physical condition and extent of restoration. Amending your tax return These have a significant effect on the value and must be fully reported in an appraisal. Amending your tax return An antique in damaged condition, or lacking the “original brasses,” may be worth much less than a similar piece in excellent condition. Amending your tax return Art appraisers. Amending your tax return   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. Amending your tax return Certain art dealers or appraisers specialize, for example, in old masters, modern art, bronze sculpture, etc. Amending your tax return 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. Amending your tax return They can report more recent comparable sales to support their opinion. Amending your tax return   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. Amending your tax return It lists museums both by state and by category. Amending your tax return   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. Amending your tax return The Yellow Pages often list specialized art and antique dealers, auctioneers, and art appraisers. Amending your tax return You may be able to find a qualified appraiser on the Internet. Amending your tax return You may also contact associations of dealers for guidance. Amending your tax return 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. Amending your tax return Most common are rare books, autographs, sports memorabilia, dolls, manuscripts, stamps, coins, guns, phonograph records, and natural history items. Amending your tax return Many of the elements of valuation that apply to paintings and other objects of art, discussed earlier, also apply to miscellaneous collections. Amending your tax return Reference material. Amending your tax return   Publications available to help you determine the value of many kinds of collections include catalogs, dealers' price lists, and specialized hobby periodicals. Amending your tax return When using one of these price guides, you must use the current edition at the date of contribution. Amending your tax return However, these sources are not always reliable indicators of FMV and should be supported by other evidence. Amending your tax return   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. Amending your tax return The price an item sold for in an auction may have been the result of a rigged sale or a mere bidding duel. Amending your tax return The appraiser must analyze the reference material, and recognize and make adjustments for misleading entries. Amending your tax return If you are donating a valuable collection, you should get an appraisal. Amending your tax return 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. Amending your tax return Stamp collections. Amending your tax return   Most libraries have catalogs or other books that report the publisher's estimate of values. Amending your tax return Generally, two price levels are shown for each stamp: the price postmarked and the price not postmarked. Amending your tax return Stamp dealers generally know the value of their merchandise and are able to prepare satisfactory appraisals of valuable collections. Amending your tax return Coin collections. Amending your tax return   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. Amending your tax return Like many other collectors' items, the value of a coin depends on the demand for it, its age, and its rarity. Amending your tax return Another important factor is the coin's condition. Amending your tax return 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. Amending your tax return   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. Amending your tax return Books. Amending your tax return   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. Amending your tax return This is difficult to do and, except for a collection of little value, should be done by a specialized appraiser. Amending your tax return Within the general category of literary property, there are dealers who specialize in certain areas, such as Americana, foreign imports, Bibles, and scientific books. Amending your tax return Modest value of collection. Amending your tax return   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. Amending your tax return   A book that is very old, or very rare, is not necessarily valuable. Amending your tax return There are many books that are very old or rare, but that have little or no market value. Amending your tax return Condition of book. Amending your tax return   The condition of a book may have a great influence on its value. Amending your tax return Collectors are interested in items that are in fine, or at least good, condition. Amending your tax return When a book has a missing page, a loose binding, tears, stains, or is otherwise in poor condition, its value is greatly lowered. Amending your tax return Other factors. Amending your tax return   Some other factors in the valuation of a book are the kind of binding (leather, cloth, paper), page edges, and illustrations (drawings and photographs). Amending your tax return Collectors usually want first editions of books. Amending your tax return However, because of changes or additions, other editions are sometimes worth as much as, or more than, the first edition. Amending your tax return Manuscripts, autographs, diaries, and similar items. Amending your tax return   When these items are handwritten, or at least signed by famous people, they are often in demand and are valuable. Amending your tax return The writings of unknowns also may be of value if they are of unusual historical or literary importance. Amending your tax return Determining the value of such material is difficult. Amending your tax return 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. Amending your tax return The appraiser determines a value in these cases by applying knowledge and judgment to such factors as comparable sales and conditions. Amending your tax return Signatures. Amending your tax return   Signatures, or sets of signatures, that were cut from letters or other papers usually have little or no value. Amending your tax return But complete sets of the signatures of U. Amending your tax return S. Amending your tax return presidents are in demand. Amending your tax return Cars, Boats, and Aircraft If you donate a car, a boat, or an aircraft to a charitable organization, its FMV must be determined. Amending your tax return 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. Amending your tax return Prices are reported for each make, model, and year. Amending your tax return These guides also provide estimates for adjusting for unusual equipment, unusual mileage, and physical condition. Amending your tax return The prices are not “official,” and these publications are not considered an appraisal of any specific donated property. Amending your tax return But they do provide clues for making an appraisal and suggest relative prices for comparison with current sales and offerings in your area. Amending your tax return These publications are sometimes available from public libraries or at a bank, credit union, or finance company. Amending your tax return You can also find pricing information about used cars on the Internet. Amending your tax return 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. Amending your tax return 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. Amending your tax return 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. Amending your tax return Example. Amending your tax return You donate a used car in poor condition to a local high school for use by students studying car repair. Amending your tax return A used car guide shows the dealer retail value for this type of car in poor condition is $1,600. Amending your tax return However, the guide shows the price for a private party sale of the car is only $750. Amending your tax return The FMV of the car is considered to be no more than $750. Amending your tax return Boats. Amending your tax return   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. Amending your tax return More information. Amending your tax return   Your deduction for a donated car, boat, or airplane generally is limited to the gross proceeds from its sale by the qualified organization. Amending your tax return This rule applies if the claimed value of the donated vehicle is more than $500. Amending your tax return In certain cases, you can deduct the vehicle's FMV. Amending your tax return For details, see Publication 526. Amending your tax return 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. Amending your tax return For more information, see Publication 526. Amending your tax return 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. Amending your tax return 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. Amending your tax return Generally, this means your deduction is the lesser of the property's FMV or its basis. Amending your tax return For details, see Publication 526. Amending your tax return Stocks and Bonds The value of stocks and bonds is the FMV of a share or bond on the valuation date. Amending your tax return See Date of contribution, earlier, under What Is Fair Market Value (FMV). Amending your tax return Selling prices on valuation date. Amending your tax return   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. Amending your tax return For example, if the highest selling price for a share was $11, and the lowest $9, the average price is $10. Amending your tax return You get the average price by adding $11 and $9 and dividing the sum by 2. Amending your tax return No sales on valuation date. Amending your tax return   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. Amending your tax return Then you weight these averages in inverse order by the respective number of trading days between the selling dates and the valuation date. Amending your tax return Example. Amending your tax return   On the day you gave stock to a qualified organization, there were no sales of the stock. Amending your tax return 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. Amending your tax return 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. Amending your tax return   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. Amending your tax return This applies if these prices are published in a generally available listing or publication of general circulation. Amending your tax return 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. Amending your tax return See also Unavailable prices or closely held corporation, later. Amending your tax return Bid and asked prices on valuation date. Amending your tax return   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. Amending your tax return Example. Amending your tax return 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. Amending your tax return The FMV is $15, the average price between the bid and asked prices. Amending your tax return No prices on valuation date. Amending your tax return   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. Amending your tax return Both dates must be within a reasonable period. Amending your tax return 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. Amending your tax return Example. Amending your tax return On the day you gave stock to a qualified organization, no prices were available. Amending your tax return Bona fide bid and asked prices 3 days before the valuation date were $10 and 2 days after the valuation date were $15. Amending your tax return 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. Amending your tax return   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. Amending your tax return Large blocks of stock. Amending your tax return   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. Amending your tax return On the other hand, market forces may exist that will afford higher prices for large blocks of stock. Amending your tax return 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. Amending your tax return Unavailable prices or closely held corporation. Amending your tax return   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. Amending your tax return For bonds, the soundness of the security, the interest yield, the date of maturity, and other relevant factors. Amending your tax return For shares of stock, the company's net worth, prospective earning power and dividend-paying capacity, and other relevant factors. Amending your tax return Other factors. Amending your tax return   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. Amending your tax return For preferred stock, the most important factors are its yield, dividend coverage, and protection of its liquidation preference. Amending your tax return   You should keep complete financial and other information on which the valuation is based. Amending your tax return 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. Amending your tax return Restricted securities. Amending your tax return   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. Amending your tax return These restricted securities usually trade at a discount in relation to freely traded securities. Amending your tax return   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. Amending your tax return Real Estate Because each piece of real estate is unique and its valuation is complicated, a detailed appraisal by a professional appraiser is necessary. Amending your tax return The appraiser must be thoroughly trained in the application of appraisal principles and theory. Amending your tax return 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. Amending your tax return 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. Amending your tax return 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. Amending your tax return In general, there are three main approaches to the valuation of real estate. Amending your tax return An appraisal may require the combined use of two or three methods rather than one method only. Amending your tax return 1. Amending your tax return Comparable Sales The comparable sales method compares the donated property with several similar properties that have been sold. Amending your tax return 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. Amending your tax return 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. Amending your tax return , Soil characteristics, vegetative cover, and status of mineral rights, and Other factors affecting value. Amending your tax return 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. Amending your tax return The comparable selling prices must be adjusted to account for differences between the sale property and the donated property. Amending your tax return 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. Amending your tax return 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. Amending your tax return 2. Amending your tax return 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. Amending your tax return The key elements are the determination of the income to be capitalized and the rate of capitalization. Amending your tax return 3. Amending your tax return Replacement Cost New or Reproduction Cost Minus Observed Depreciation This method, used alone, usually does not result in a determination of FMV. Amending your tax return 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. Amending your tax return Of course, this reasoning does not apply if a similar property cannot be created because of location, unusual construction, or some other reason. Amending your tax return Generally, this method serves to support the value determined from other methods. Amending your tax return When the replacement cost method is applied to improved realty, the land and improvements are valued separately. Amending your tax return 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. Amending your tax return This cost represents the total cost of labor and material, overhead, and profit. Amending your tax return 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. Amending your tax return 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. Amending your tax return 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. Amending your tax return The value of the goodwill of the business should also be taken into consideration. Amending your tax return You should keep complete financial and other information on which you base the valuation. Amending your tax return 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. Amending your tax return 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. Amending your tax return The valuation of these commercial annuity contracts and of insurance policies is discussed later under Certain Life Insurance and Annuity Contracts. Amending your tax return To determine present value, you must know the applicable interest rate and use actuarial tables. Amending your tax return Interest rate. Amending your tax return   The applicable interest rate varies. Amending your tax return It is announced monthly in a news release and published in the Internal Revenue Bulletin as a Revenue Ruling. Amending your tax return The interest rate to use is under the heading “Rate Under Section 7520” for a given month and year. Amending your tax return You can call the IRS office at 1-800-829-1040 to obtain this rate. Amending your tax return Actuarial tables. Amending your tax return   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. Amending your tax return   Use the valuation tables set forth in IRS Publications 1457, Actuarial Values (Book Aleph), and 1458, Actuarial Values (Book Beth). Amending your tax return 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. Amending your tax return 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. Amending your tax return   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. Amending your tax return Publication 1458 contains the factors for valuing the remainder interest in a charitable remainder unitrust. Amending your tax return You can download Publications 1457 and 1458 from www. Amending your tax return irs. Amending your tax return gov. Amending your tax return In addition, they are available for purchase via the website of the U. Amending your tax return S. Amending your tax return Government Printing Office, by phone at (202) 512-1800, or by mail from the: Superintendent of Documents P. Amending your tax return O. Amending your tax return 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. Amending your tax return 642(c)-6(e)(6), transfers to charitable remainder unitrusts in Regulation 1. Amending your tax return 664-4(e), and other transfers in Regulation 20. Amending your tax return 2031-7(d)(6). Amending your tax return Special factors. Amending your tax return   If you need a special factor for an actual transaction, you can request a letter ruling. Amending your tax return Be sure to include the date of birth of each person the duration of whose life may affect the value of the interest. Amending your tax return Also include copies of the relevant instruments. Amending your tax return IRS charges a user fee for providing special factors. Amending your tax return   For more information about requesting a ruling, see Revenue Procedure 2006-1 (or annual update), 2006-1 I. Amending your tax return R. Amending your tax return B. Amending your tax return 1. Amending your tax return Revenue Procedure 2006-1 is available at www. Amending your tax return irs. Amending your tax return gov/irb/2006-01_IRB/ar06. Amending your tax return html. Amending your tax return   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. Amending your tax return 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. Amending your tax return 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. Amending your tax return 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. Amending your tax return 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. Amending your tax return 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. Amending your tax return 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. Amending your tax return To determine this value, you must know the FMV of the property on the date of the contribution. Amending your tax return Multiply this value by the appropriate factor. Amending your tax return Publications 1457 and 1458 contain these factors. Amending your tax return You must make an adjustment for depreciation or depletion using the factors shown in Publication 1459, Actuarial Values (Book Gimel). Amending your tax return You can use the factors for the month in which you made the contribution or for either of the two months preceding that month. Amending your tax return See the earlier discussion on Annuities, Interests for Life or Terms of Years, Remainders, and Reversions. Amending your tax return You can download Publication 1459 from www. Amending your tax return irs. Amending your tax return gov. Amending your tax return 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. Amending your tax return 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. Amending your tax return This rule also applies to a gift of a remainder interest that includes property that is part depletable and part not depletable. Amending your tax return Take into account depreciation or depletion only for the property that is subject to depreciation or depletion. Amending your tax return For more information, see section 1. Amending your tax return 170A-12 of the Income Tax Regulations. Amending your tax return 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. Amending your tax return It must extend over the entire term of your interest in the property. Amending your tax return 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. Amending your tax return You can claim a deduction for the contribution if you do not have any other interest in the property. Amending your tax return To figure the value of a contribution involving a partial interest, see Publication 1457. Amending your tax return 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. Amending your tax return 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. Amending your tax return Qualified organization. Amending your tax return   For purposes of a qualified conservation contribution, a qualified organization is: A governmental unit, A publicly supported charitable, religious, scientific, literary, educational, etc. Amending your tax return , organization, or An organization that is controlled by, and operated for the exclusive benefit of, a governmental unit or a publicly supported charity. Amending your tax return The organization also must have a commitment to protect the conservation purposes of the donation and must have the resources to enforce the restrictions. Amending your tax return Conservation purposes. Amending your tax return   Your contribution must be made only for one of the following conservation purposes. Amending your tax return Preserving land areas for outdoor recreation by, or for the education of, the general public. Amending your tax return Protecting a relatively natural habitat of fish, wildlife, or plants, or a similar ecosystem. Amending your tax return Preserving open space, including farmland and forest land, if it yields a significant public benefit. Amending your tax return It must be either for the scenic enjoyment of the general public or under a clearly defined federal, state, or local governmental conservation policy. Amending your tax return Preserving a historically important land area or a certified historic structure. Amending your tax return There must be some visual public access to the property. Amending your tax return 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. Amending your tax return Building in registered historic district. Amending your tax return   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. Amending your tax return 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. Amending your tax return 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. Amending your tax return 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. Amending your tax return   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. Amending your tax return See Form 8283-V, Payment Voucher for Filing Fee Under Section 170(f)(13), and its instructions. Amending your tax return Qualified real property interest. Amending your tax return   This is any of the following interests in real property. Amending your tax return 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). Amending your tax return A remainder interest. Amending your tax return A restriction (granted in perpetuity) on the use that may be made of the real property. Amending your tax return Valuation. Amending your tax return   A qualified real property interest described in (1) should be valued in a manner that is consistent with the type of interest transferred. Amending your tax return If you transferred all the interest in the property, the FMV of the property is the amount of the contribution. Amending your tax return If you do not transfer the mineral interest, the FMV of the surface rights in the property is the amount of the contribution. Amending your tax return   If you owned only a remainder interest or an income interest (life estate), see Undivided Part of Your Entire Interest, earlier. Amending your tax return If you owned the entire property but transferred only a remainder interest (item (2)), see Remainder Interest in Real Property, earlier. Amending your tax return   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. Amending your tax return 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. Amending your tax return   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. Amending your tax return You should also consider any zoning, conservation, or historical preservation laws that would restrict development. Amending your tax return Granting an easement may increase, rather than reduce, the value of property, and in such a situation no deduction would be allowed. Amending your tax return Example. Amending your tax return   You own 10 acres of farmland. Amending your tax return Similar land in the area has an FMV of $2,000 an acre. Amending your tax return However, land in the general area that is restricted solely to farm use has an FMV of $1,500 an acre. Amending your tax return Your county wants to preserve open space and prevent further development in your area. Amending your tax return   You grant to the county an enforceable open space easement in perpetuity on 8 of the 10 acres, restricting its use to farmland. Amending your tax return 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. Amending your tax return More information. Amending your tax return   For more information about qualified conservation contributions, see Publication 526. Amending your tax return Appraisals Appraisals are not necessary for items of property for which you claim a deduction of $5,000 or less. Amending your tax return (There is one exception, described next, for certain clothing and household items. Amending your tax return ) However, you generally will need an appraisal for donated property for which you claim a deduction of more than $5,000. Amending your tax return There are exceptions. Amending your tax return See Deductions of More Than $5,000, later. Amending your tax return 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. Amending your tax return An appraisal must give all the facts on which to base an intelligent judgment of the value of the property. Amending your tax return 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. Amending your tax return The appraiser's opinion is never more valid than the facts on which it is based; without these facts it is simply a guess. Amending your tax return The opinion of a person claiming to be an expert is not binding on the Internal Revenue Service. Amending your tax return All facts associated with the donation must be considered. Amending your tax return Deduction over $500 for certain clothing or household items. Amending your tax return   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. Amending your tax return See Household Goods and Used Clothing, earlier. Amending your tax return Cost of appraisals. Amending your tax return   You may not take a charitable contribution deduction for fees you pay for appraisals of your donated property. Amending your tax return 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. Amending your tax return 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. Amending your tax return There are exceptions, discussed later. Amending your tax return You should keep the appraiser's report with your written records. Amending your tax return Records are discussed in Publication 526. Amending your tax return 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. Amending your tax return 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. Amending your tax return 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. Amending your tax return Exceptions. Amending your tax return   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. Amending your tax return   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. Amending your tax return Publicly traded securities. Amending your tax return   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. Amending your tax return Publicly traded securities that meet these requirements must be reported on Form 8283, Section A. Amending your tax return   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. Amending your tax return   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. Amending your tax return 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. Amending your tax return   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. Amending your tax return Bid and asked quotations are not taken into account. Amending your tax return   The computation period is weekly during October through December and monthly during January through September. Amending your tax return 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. Amending your tax return Nonpublicly traded stock. Amending your tax return   If you contribute nonpublicly traded stock, for which you claim a deduction of $10,000 or less, a qualified appraisal is not required. Amending your tax return However, you must attach Form 8283 to your tax return, with Section B, Parts I and IV, completed. Amending your tax return 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. Amending your tax return This does not apply to contributions of cash, inventory, publicly traded stock, or intellectual property. Amending your tax return 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. Amending your tax return 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. Amending your tax return You must also complete Form 8283, Section B, and attach it to your tax return. Amending your tax return See Deductions of More Than $5,000, earlier. Amending your tax return 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. Amending your tax return 170A-13(c)(3) and Notice 2006-96, 2006-46 I. Amending your tax return R. Amending your tax return B. Amending your tax return 902 (available at www. Amending your tax return irs. Amending your tax return gov/irb/2006-46_IRB/ar13. Amending your tax return 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). Amending your tax return 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. Amending your tax return 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. Amending your tax return Form 8283, Section B, must be attached to your tax return. Amending your tax return 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. Amending your tax return There are four exceptions. Amending your tax return If you claim a deduction of $20,000 or more for donations of art, you must attach a complete copy of the appraisal. Amending your tax return See Paintings, Antiques, and Other Objects of Art, earlier. Amending your tax return If you claim a deduction of more than $500,000 for a donation of property, you must attach the appraisal. Amending your tax return See Deductions of More Than $500,000, earlier. Amending your tax return 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. Amending your tax return See Deduction over $500 for certain clothing or household items, earlier. Amending your tax return 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. Amending your tax return See Building in registered historic district, earlier. Amending your tax return Prohibited appraisal fee. Amending your tax return   Generally, no part of the fee arrangement for a qualified appraisal can be based on a percentage of the appraised value of the property. Amending your tax return 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. Amending your tax return However, appraisals are not disqualified when an otherwise prohi
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Amending your tax return 10. Amending your tax return   Business Bad Debts Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Definition of Business Bad DebtAccrual method. Amending your tax return Cash method. Amending your tax return Debt acquired from a decedent. Amending your tax return Liquidation. Amending your tax return Types of Business Bad Debts When a Debt Becomes Worthless How To Claim a Business Bad DebtSpecific Charge-Off Method Nonaccrual-Experience Method Recovery of a Bad DebtNet operating loss (NOL) carryover. Amending your tax return Introduction You have a bad debt if you cannot collect money owed to you. Amending your tax return A bad debt is either a business bad debt or a nonbusiness bad debt. Amending your tax return This chapter discusses only business bad debts. Amending your tax return Generally, a business bad debt is one that comes from operating your trade or business. Amending your tax return You can deduct business bad debts on Schedule C (Form 1040) or your applicable business income tax return. Amending your tax return All other bad debts are nonbusiness bad debts and are deductible only as short-term capital losses. Amending your tax return For more information on nonbusiness bad debts, see Publication 550. Amending your tax return Topics - This chapter discusses: Definition of business bad debt When a debt becomes worthless How to claim a business bad debt Recovery of a bad debt Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 556 Examination of Returns, Appeal Rights, and Claims for Refund Form (and Instructions) Schedule C (Form 1040) Profit or Loss From Business 1040X Amended U. Amending your tax return S. Amending your tax return Individual Income Tax Return 1045 Application for Tentative Refund 1139 Corporation Application for Tentative Refund 3115 Application for Change in Accounting Method See chapter 12 for information about getting publications and forms. Amending your tax return Definition of Business Bad Debt A business bad debt is a loss from the worthlessness of a debt that was either: Created or acquired in your trade or business, or Closely related to your trade or business when it became partly or totally worthless. Amending your tax return A debt is closely related to your trade or business if your primary motive for incurring the debt is business related. Amending your tax return Bad debts of a corporation (other than an S corporation) are always business bad debts. Amending your tax return Credit sales. Amending your tax return   Business bad debts are mainly the result of credit sales to customers. Amending your tax return Goods that have been sold, but not yet paid for, and services that have been performed, but not yet paid for, are recorded in your books as either accounts receivable or notes receivable. Amending your tax return After a reasonable period of time, if you have tried to collect the amount due, but are unable to do so, the uncollectible part becomes a business bad debt. Amending your tax return   Accounts or notes receivable valued at fair market value (FMV) when received are deductible only at that value, even though the FMV may be less than the face value. Amending your tax return If you purchased an account receivable for less than its face value, and the receivable subsequently becomes worthless, the most you are allowed to deduct is the amount you paid to acquire it. Amending your tax return    You can claim a business bad debt deduction only if the amount owed to you was previously included in gross income. Amending your tax return This applies to amounts owed to you from all sources of taxable income, including sales, services, rents, and interest. Amending your tax return Accrual method. Amending your tax return   If you use the accrual method of accounting, you generally report income as you earn it. Amending your tax return You can only claim a bad debt deduction for an uncollectible receivable if you have previously included the uncollectible amount in income. Amending your tax return   If you qualify, you can use the nonaccrual-experience method of accounting discussed later. Amending your tax return Under this method, you do not have to accrue income that, based on your experience, you do not expect to collect. Amending your tax return Cash method. Amending your tax return   If you use the cash method of accounting, you generally report income when you receive payment. Amending your tax return You cannot claim a bad debt deduction for amounts owed to you because you never included those amounts in income. Amending your tax return For example, a cash basis architect cannot claim a bad debt deduction if a client fails to pay the bill because the architect's fee was never included in income. Amending your tax return Debts from a former business. Amending your tax return   If you sell your business but retain its receivables, these debts are business debts because they arose out of your trade or business. Amending your tax return If any of these receivables subsequently become worthless, the loss is still a business bad debt. Amending your tax return Debt acquired from a decedent. Amending your tax return   The character of a loss from debts of a business acquired from a decedent is determined in the same way as debts acquired on the purchase of a business. Amending your tax return The executor of the decedent's estate treats any loss from the debts as a business bad debt if the debts were closely related to the decedent's trade or business when they became worthless. Amending your tax return Otherwise, a loss from these debts becomes a nonbusiness bad debt for the decedent's estate. Amending your tax return Liquidation. Amending your tax return   If you liquidate your business and some of the accounts receivable that you retain become worthless, they become business bad debts. Amending your tax return Types of Business Bad Debts Business bad debts may result from the following. Amending your tax return Loans to clients and suppliers. Amending your tax return   If you loan money to a client, supplier, employee, or distributor for a business reason and you are unable to collect the loan after attempting to do so, you have a business bad debt. Amending your tax return Debts owed by political parties. Amending your tax return   If a political party (or other organization that accepts contributions or spends money to influence elections) owes you money and the debt becomes worthless, you can claim a bad debt deduction only if all of the following requirements are met. Amending your tax return You use the accrual method of accounting. Amending your tax return The debt arose from the sale of goods or services in the ordinary course of your trade or business. Amending your tax return More than 30% of your receivables accrued in the year of the sale were from sales to political parties. Amending your tax return You made substantial and continuing efforts to collect on the debt. Amending your tax return Loan or capital contribution. Amending your tax return   You cannot claim a bad debt deduction for a loan you made to a corporation if, based on the facts and circumstances, the loan is actually a contribution to capital. Amending your tax return Debts of an insolvent partner. Amending your tax return   If your business partnership breaks up and one of your former partners becomes insolvent, you may have to pay more than your pro rata share of the partnership's debts. Amending your tax return If you pay any part of the insolvent partner's share of the debts, you can claim a bad debt deduction for the amount you paid that is attributable to the insolvent partner's share. Amending your tax return Business loan guarantee. Amending your tax return   If you guarantee a debt that subsequently becomes worthless, the debt can qualify as a business bad debt if all the following requirements are met. Amending your tax return You made the guarantee in the course of your trade or business. Amending your tax return You have a legal duty to pay the debt. Amending your tax return You made the guarantee before the debt became worthless. Amending your tax return You meet this requirement if you reasonably expected you would not have to pay the debt without full reimbursement from the borrower. Amending your tax return You received reasonable consideration for making the guarantee. Amending your tax return You meet this requirement if you made the guarantee in accord with normal business practice or for a good faith business purpose. Amending your tax return Example. Amending your tax return Jane Zayne owns the Zayne Dress Company. Amending your tax return She guaranteed payment of a $20,000 note for Elegant Fashions, a dress outlet. Amending your tax return Elegant Fashions is one of Zayne's largest clients. Amending your tax return Elegant Fashions later defaulted on the loan. Amending your tax return As a result, Ms. Amending your tax return Zayne paid the remaining balance of the loan in full to the bank. Amending your tax return She can claim a business bad debt deduction only for the amount she paid, since her guarantee was made in the course of her trade or business for a good faith business purpose. Amending your tax return She was motivated by the desire to retain one of her better clients and keep a sales outlet. Amending your tax return Deductible in the year paid. Amending your tax return   If you make a payment on a loan you guaranteed, you can deduct it in the year paid, unless you have rights against the borrower. Amending your tax return Rights against a borrower. Amending your tax return   When you make payment on a loan you guaranteed, you may have the right to take the place of the lender. Amending your tax return The debt is then owed to you. Amending your tax return If you have this right, or some other right to demand payment from the borrower, you cannot claim a bad debt deduction until these rights become partly or totally worthless. Amending your tax return Joint debtor. Amending your tax return   If two or more debtors jointly owe you money, your inability to collect from one does not enable you to deduct a proportionate amount as a bad debt. Amending your tax return Sale of mortgaged property. Amending your tax return   If mortgaged or pledged property is sold for less than the debt, the unpaid, uncollectible balance of the debt is a bad debt. Amending your tax return When a Debt Becomes Worthless A debt becomes worthless when there is no longer any chance the amount owed will be paid. Amending your tax return This may occur when the debt is due or prior to that date. Amending your tax return To demonstrate worthlessness, you must only show that you have taken reasonable steps to collect the debt but were unable to do so. Amending your tax return It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. Amending your tax return Bankruptcy of your debtor is generally good evidence of the worthlessness of at least a part of an unsecured and unpreferred debt. Amending your tax return Property received for debt. Amending your tax return   If you receive property in partial settlement of a debt, reduce the debt by the property's FMV, which becomes the property's basis. Amending your tax return You can deduct the remaining debt as a bad debt if and when it becomes worthless. Amending your tax return   If you later sell the property for more than its basis, any gain on the sale is due to the appreciation of the property. Amending your tax return It is not a recovery of a bad debt. Amending your tax return For information on the sale of an asset, see Publication 544. Amending your tax return How To Claim a Business Bad Debt There are two methods to claim a business bad debt. Amending your tax return The specific charge-off method. Amending your tax return The nonaccrual-experience method. Amending your tax return Generally, you must use the specific charge-off method. Amending your tax return However, you may use the nonaccrual-experience method if you meet the requirements discussed later under Nonaccrual-Experience Method . Amending your tax return Specific Charge-Off Method If you use the specific charge-off method, you can deduct specific business bad debts that become either partly or totally worthless during the tax year. Amending your tax return However, with respect to partly worthless bad debts, your deduction is limited to the amount you charged off on your books during the year. Amending your tax return Partly worthless debts. Amending your tax return   You can deduct specific bad debts that become partly uncollectible during the tax year. Amending your tax return Your tax deduction is limited to the amount you charge off on your books during the year. Amending your tax return You do not have to charge off and deduct your partly worthless debts annually. Amending your tax return You can delay the charge off until a later year. Amending your tax return However, you cannot deduct any part of a debt after the year it becomes totally worthless. Amending your tax return Significantly modified debt. Amending your tax return   An exception to the charge-off rule exists for debt which has been significantly modified and on which the holder recognized gain. Amending your tax return For more information, see Regulations section 1. Amending your tax return 166-3(a)(3). Amending your tax return Deduction disallowed. Amending your tax return   Generally, you can claim a partial bad debt deduction only in the year you make the charge-off on your books. Amending your tax return If, under audit, the IRS does not allow your deduction and the debt becomes partly worthless in a later tax year, you can deduct the amount you charged off in that year plus the disallowed amount charged off in the earlier year. Amending your tax return The charge-off in the earlier year, unless reversed on your books, fulfills the charge-off requirement for the later year. Amending your tax return Totally worthless debts. Amending your tax return   If a debt becomes totally worthless in the current tax year, you can deduct the entire amount, less any amount deducted in an earlier tax year when the debt was only partly worthless. Amending your tax return   You do not have to make an actual charge-off on your books to claim a bad debt deduction for a totally worthless debt. Amending your tax return However, you may want to do so. Amending your tax return If you do not and the IRS later rules the debt is only partly worthless, you will not be allowed a deduction for the debt in that tax year because a deduction of a partly worthless bad debt is limited to the amount actually charged off. Amending your tax return See Partly worthless debts, earlier. Amending your tax return Filing a claim for refund. Amending your tax return   If you did not deduct a bad debt on your original return for the year it became worthless, you can file a claim for a credit or refund. Amending your tax return If the bad debt was totally worthless, you must file the claim by the later of the following dates. Amending your tax return 7 years from the date your original return was due (not including extensions). Amending your tax return 2 years from the date you paid the tax. Amending your tax return   If the claim is for a partly worthless bad debt, you must file the claim by the later of the following dates. Amending your tax return 3 years from the date you filed your original return. Amending your tax return 2 years from the date you paid the tax. Amending your tax return You may have longer to file the claim if you were unable to manage your financial affairs due to a physical or mental impairment. Amending your tax return Such an impairment requires proof of existence. Amending your tax return   For details and more information about filing a claim, see Publication 556. Amending your tax return Use one of the following forms to file a claim. Amending your tax return For more information, see the instructions for the applicable form. Amending your tax return Table 10-1. Amending your tax return Forms Used To File a Claim IF you filed as a. Amending your tax return . Amending your tax return . Amending your tax return THEN file. Amending your tax return . Amending your tax return . Amending your tax return Sole proprietor or farmer Form 1040X Corporation Form 1120X S corporation Form 1120S and check box H(4) Partnership Form 1065X if filing on paper or  Form 1065 and check box G(5) if filing electronically Nonaccrual-Experience Method If you use an accrual method of accounting and qualify under the rules explained in this section, you can use the nonaccrual-experience method for bad debts. Amending your tax return Under this method, you do not accrue service related income you expect to be uncollectible. Amending your tax return Because the expected uncollectible amounts are not included in income, these amounts are not later deducted from income. Amending your tax return Generally, you can use the nonaccrual-experience method for accounts receivable for services you performed only if: The services are provided in the fields of accounting, actuarial science, architecture, consulting, engineering, health, law, or the performing arts, or You meet the $5 million gross receipts test for all prior years. Amending your tax return Service related income. Amending your tax return   You can use the nonaccrual-experience method only for amounts earned by performing services. Amending your tax return You cannot use this method for amounts owed to you from activities such as lending money, selling goods, or acquiring receivables or other rights to receive payment. Amending your tax return Gross receipts test. Amending your tax return   To find out if you meet the $5 million gross receipts test for all prior years, you must figure the average annual gross receipts for each prior year. Amending your tax return If your average annual gross receipts for any year exceeds $5 million, you cannot use the non-accural experience method. Amending your tax return   The average annual gross receipts for any year is the average of gross receipts from the year in question and the 2 previous years. Amending your tax return For example, if you were figuring the average annual gross receipts for 2013, you would average your gross receipts for 2011, 2012, and 2013. Amending your tax return Interest or penalty charged. Amending your tax return   Generally, you cannot use the nonaccrual-experience method for amounts due on which you charge interest or a late payment penalty. Amending your tax return However, do not treat a discount offered for early payment as the charging of interest or a penalty if both the following apply. Amending your tax return You otherwise accrue the full amount due as gross income at the time you provide the services. Amending your tax return You treat the discount allowed for early payment as an adjustment to gross income in the year of payment. Amending your tax return Change in accounting method. Amending your tax return   Generally, you must obtain consent to change to a nonaccrual-experience method (other than one of the safe harbor methods) or to change from one method to another. Amending your tax return See Form 3115 and the Instructions for Form 3115 for more information. Amending your tax return Recovery of a Bad Debt If you claim a deduction for a bad debt on your income tax return and later recover (collect) all or part of it, you may have to include all or part of the recovery in gross income. Amending your tax return The amount you include is limited to the amount you actually deducted. Amending your tax return However, you can exclude the amount deducted that did not reduce your tax. Amending your tax return Report the recovery as “Other income” on the appropriate business form or schedule. Amending your tax return See Recoveries in Publication 525 for more information. Amending your tax return Net operating loss (NOL) carryover. Amending your tax return   If a bad debt deduction increases an NOL carryover that has not expired before the beginning of the tax year in which the recovery takes place, you treat the deduction as having reduced your tax. Amending your tax return A bad debt deduction that contributes to a NOL helps lower taxes in the year to which you carry the NOL. Amending your tax return For more information about NOLs, see Publication 536. Amending your tax return Also, see the Instructions for Form 1045, and the Instructions for Form 1139. 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