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Form 1040 X

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Form 1040 X

Form 1040 x 4. Form 1040 x   Student Loan Interest Deduction Table of Contents Introduction Student Loan Interest DefinedQualified Student Loan Qualified Education Expenses Include As Interest Do Not Include As Interest When Must Interest Be Paid Can You Claim the DeductionNo Double Benefit Allowed Figuring the DeductionEffect of the Amount of Your Income on the Amount of Your Deduction Which Worksheet To Use Claiming the Deduction Introduction Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. Form 1040 x However, if your modified adjusted gross income (MAGI) is less than $75,000 ($155,000 if filing a joint return) there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. Form 1040 x For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. Form 1040 x This deduction can reduce the amount of your income subject to tax by up to $2,500 in 2013. Form 1040 x The student loan interest deduction is taken as an adjustment to income. Form 1040 x This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). Form 1040 x This chapter explains: What type of loan interest you can deduct, Whether you can claim the deduction, What expenses you must have paid with the student loan, Who is an eligible student, How to figure the deduction, and How to claim the deduction. Form 1040 x Table 4-1. Form 1040 x Student Loan Interest Deduction at a Glance This table summarizes the features of the student loan interest deduction. Form 1040 x Do not rely on this table alone. Form 1040 x Refer to the text for complete details. Form 1040 x Feature   Description Maximum benefit   You can reduce your income subject to tax by up to $2,500. Form 1040 x Loan qualifications   Your student loan: •must have been taken out solely to pay qualified education expenses, and •cannot be from a related person or made under a qualified employer plan. Form 1040 x Student qualifications   The student must be: •you, your spouse, or your dependent, and  •enrolled at least half-time in a degree program. Form 1040 x Time limit on deduction   You can deduct interest paid during the remaining period of your student loan. Form 1040 x Limit on modified adjusted gross income (MAGI)   $155,000 if married filing a joint return; $75,000 if single, head of household, or qualifying widow(er). Form 1040 x Student Loan Interest Defined Student loan interest is interest you paid during the year on a qualified student loan. Form 1040 x It includes both required and voluntary interest payments. Form 1040 x Qualified Student Loan This is a loan you took out solely to pay qualified education expenses (defined later) that were: For you, your spouse, or a person who was your dependent when you took out the loan, Paid or incurred within a reasonable period of time before or after you took out the loan, and For education provided during an academic period for an eligible student. Form 1040 x Loans from the following sources are not qualified student loans. Form 1040 x A related person. Form 1040 x A qualified employer plan. Form 1040 x Your dependent. Form 1040 x   Generally, your dependent is someone who is either a: Qualifying child, or Qualifying relative. Form 1040 x You can find more information about dependents in Publication 501. Form 1040 x Exceptions. Form 1040 x   For purposes of the student loan interest deduction, there are the following exceptions to the general rules for dependents. Form 1040 x An individual can be your dependent even if you are the dependent of another taxpayer. Form 1040 x An individual can be your dependent even if the individual files a joint return with a spouse. Form 1040 x An individual can be your dependent even if the individual had gross income for the year that was equal to or more than the exemption amount for the year ($3,900 for 2013). Form 1040 x Reasonable period of time. Form 1040 x   Qualified education expenses are treated as paid or incurred within a reasonable period of time before or after you take out the loan if they are paid with the proceeds of student loans that are part of a federal postsecondary education loan program. Form 1040 x   Even if not paid with the proceeds of that type of loan, the expenses are treated as paid or incurred within a reasonable period of time if both of the following requirements are met. Form 1040 x The expenses relate to a specific academic period, and The loan proceeds are disbursed within a period that begins 90 days before the start of that academic period and ends 90 days after the end of that academic period. Form 1040 x   If neither of the above situations applies, the reasonable period of time usually is determined based on all the relevant facts and circumstances. Form 1040 x Academic period. Form 1040 x   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Form 1040 x In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Form 1040 x Eligible student. Form 1040 x   This is a student who was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. Form 1040 x Enrolled at least half-time. Form 1040 x   A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. Form 1040 x   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Form 1040 x However, the standard may not be lower than any of those established by the U. Form 1040 x S. Form 1040 x Department of Education under the Higher Education Act of 1965. Form 1040 x Related person. Form 1040 x   You cannot deduct interest on a loan you get from a related person. Form 1040 x Related persons include: Your spouse, Your brothers and sisters, Your half brothers and half sisters, Your ancestors (parents, grandparents, etc. Form 1040 x ), Your lineal descendants (children, grandchildren, etc. Form 1040 x ), and Certain corporations, partnerships, trusts, and exempt organizations. Form 1040 x Qualified employer plan. Form 1040 x   You cannot deduct interest on a loan made under a qualified employer plan or under a contract purchased under such a plan. Form 1040 x Qualified Education Expenses For purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution, including graduate school. Form 1040 x They include amounts paid for the following items. Form 1040 x Tuition and fees. Form 1040 x Room and board. Form 1040 x Books, supplies, and equipment. Form 1040 x Other necessary expenses (such as transportation). Form 1040 x The cost of room and board qualifies only to the extent that it is not more than the greater of: The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student, or The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. Form 1040 x Eligible educational institution. Form 1040 x   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Form 1040 x S. Form 1040 x Department of Education. Form 1040 x It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Form 1040 x   Certain educational institutions located outside the United States also participate in the U. Form 1040 x S. Form 1040 x Department of Education's Federal Student Aid (FSA) programs. Form 1040 x   For purposes of the student loan interest deduction, an eligible educational institution also includes an institution conducting an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. Form 1040 x   An educational institution must meet the above criteria only during the academic period(s) for which the student loan was incurred. Form 1040 x The deductibility of interest on the loan is not affected by the institution's subsequent loss of eligibility. Form 1040 x    The educational institution should be able to tell you if it is an eligible educational institution. Form 1040 x Adjustments to Qualified Education Expenses You must reduce your qualified education expenses by the total amount paid for them with the following tax-free items. Form 1040 x Employer-provided educational assistance. Form 1040 x See chapter 11, Employer-Provided Educational Assistance . Form 1040 x Tax-free distribution of earnings from a Coverdell education savings account (ESA). Form 1040 x See Tax-Free Distributions in chapter 7, Coverdell Education Savings Account. Form 1040 x Tax-free distribution of earnings from a qualified tuition program (QTP). Form 1040 x See Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program. Form 1040 x U. Form 1040 x S. Form 1040 x savings bond interest that you exclude from income because it is used to pay qualified education expenses. Form 1040 x See chapter 10, Education Savings Bond Program . Form 1040 x The tax-free part of scholarships and fellowships. Form 1040 x See Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Form 1040 x Veterans' educational assistance. Form 1040 x See Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Form 1040 x Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Form 1040 x Include As Interest In addition to simple interest on the loan, if all other requirements are met, the items discussed below can be student loan interest. Form 1040 x Loan origination fee. Form 1040 x   In general, this is a one-time fee charged by the lender when a loan is made. Form 1040 x To be deductible as interest, a loan origination fee must be for the use of money rather than for property or services (such as commitment fees or processing costs) provided by the lender. Form 1040 x A loan origination fee treated as interest accrues over the term of the loan. Form 1040 x   Loan origination fees were not required to be reported on Form 1098-E, Student Loan Interest Statement, for loans made before September 1, 2004. Form 1040 x If loan origination fees are not included in the amount reported on your Form 1098-E, you can use any reasonable method to allocate the loan origination fees over the term of the loan. Form 1040 x The method shown in the example below allocates equal portions of the loan origination fee to each payment required under the terms of the loan. Form 1040 x A method that results in the double deduction of the same portion of a loan origination fee would not be reasonable. Form 1040 x Example. Form 1040 x In August 2004, Bill took out a student loan for $16,000 to pay the tuition for his senior year of college. Form 1040 x The lender charged a 3% loan origination fee ($480) that was withheld from the funds Bill received. Form 1040 x Bill began making payments on his student loan in 2013. Form 1040 x Because the loan origination fee was not included in his 2013 Form 1098-E, Bill can use any reasonable method to allocate that fee over the term of the loan. Form 1040 x Bill's loan is payable in 120 equal monthly payments. Form 1040 x He allocates the $480 fee equally over the total number of payments ($480 ÷ 120 months = $4 per month). Form 1040 x Bill made 7 payments in 2013, so he paid $28 ($4 × 7) of interest attributable to the loan origination fee. Form 1040 x To determine his student loan interest deduction, he will add the $28 to the amount of other interest reported to him on Form 1098-E. Form 1040 x Capitalized interest. Form 1040 x   This is unpaid interest on a student loan that is added by the lender to the outstanding principal balance of the loan. Form 1040 x Capitalized interest is treated as interest for tax purposes and is deductible as payments of principal are made on the loan. Form 1040 x No deduction for capitalized interest is allowed in a year in which no loan payments were made. Form 1040 x Interest on revolving lines of credit. Form 1040 x   This interest, which includes interest on credit card debt, is student loan interest if the borrower uses the line of credit (credit card) only to pay qualified education expenses. Form 1040 x See Qualified Education Expenses , earlier. Form 1040 x Interest on refinanced student loans. Form 1040 x   This includes interest on both: Consolidated loans—loans used to refinance more than one student loan of the same borrower, and Collapsed loans—two or more loans of the same borrower that are treated by both the lender and the borrower as one loan. Form 1040 x    If you refinance a qualified student loan for more than your original loan and you use the additional amount for any purpose other than qualified education expenses, you cannot deduct any interest paid on the refinanced loan. Form 1040 x Voluntary interest payments. Form 1040 x   These are payments made on a qualified student loan during a period when interest payments are not required, such as when the borrower has been granted a deferment or the loan has not yet entered repayment status. Form 1040 x Example. Form 1040 x The payments on Roger's student loan were scheduled to begin in June 2012, 6 months after he graduated from college. Form 1040 x He began making payments as required. Form 1040 x In September 2013, Roger enrolled in graduate school on a full-time basis. Form 1040 x He applied for and was granted deferment of his loan payments while in graduate school. Form 1040 x Wanting to pay down his student loan as much as possible, he made loan payments in October and November 2013. Form 1040 x Even though these were voluntary (not required) payments, Roger can deduct the interest paid in October and November. Form 1040 x Allocating Payments Between Interest and Principal The allocation of payments between interest and principal for tax purposes might not be the same as the allocation shown on the Form 1098-E or other statement you receive from the lender or loan servicer. Form 1040 x To make the allocation for tax purposes, a payment generally applies first to stated interest that remains unpaid as of the date the payment is due, second to any loan origination fees allocable to the payment, third to any capitalized interest that remains unpaid as of the date the payment is due, and fourth to the outstanding principal. Form 1040 x Example. Form 1040 x In August 2012, Peg took out a $10,000 student loan to pay the tuition for her senior year of college. Form 1040 x The lender charged a 3% loan origination fee ($300) that was withheld from the funds Peg received. Form 1040 x The interest (5% simple) on this loan accrued while she completed her senior year and for 6 months after she graduated. Form 1040 x At the end of that period, the lender determined the amount to be repaid by capitalizing all accrued but unpaid interest ($625 interest accrued from August 2012 through October 2013) and adding it to the outstanding principal balance of the loan. Form 1040 x The loan is payable over 60 months, with a payment of $200. Form 1040 x 51 due on the first of each month, beginning November 2013. Form 1040 x Peg did not receive a Form 1098-E for 2013 from her lender because the amount of interest she paid did not require the lender to issue an information return. Form 1040 x However, she did receive an account statement from the lender that showed the following 2013 payments on her outstanding loan of $10,625 ($10,000 principal + $625 accrued but unpaid interest). Form 1040 x Payment Date   Payment   Stated Interest   Principal November 2013   $200. Form 1040 x 51   $44. Form 1040 x 27   $156. Form 1040 x 24 December 2013   $200. Form 1040 x 51   $43. Form 1040 x 62   $156. Form 1040 x 89 Totals   $401. Form 1040 x 02   $87. Form 1040 x 89   $313. Form 1040 x 13 To determine the amount of interest that could be deducted on the loan for 2013, Peg starts with the total amount of stated interest she paid, $87. Form 1040 x 89. Form 1040 x Next, she allocates the loan origination fee over the term of the loan ($300 ÷ 60 months = $5 per month). Form 1040 x A total of $10 ($5 of each of the two principal payments) should be treated as interest for tax purposes. Form 1040 x Peg then applies the unpaid capitalized interest ($625) to the two principal payments in the order in which they were made, and determines that the remaining amount of principal of both payments is treated as interest for tax purposes. Form 1040 x Assuming that Peg qualifies to take the student loan interest deduction, she can deduct $401. Form 1040 x 02 ($87. Form 1040 x 89 + $10 + $303. Form 1040 x 13). Form 1040 x For 2014, Peg will continue to allocate $5 of the loan origination fee to the principal portion of each monthly payment she makes and treat that amount as interest for tax purposes. Form 1040 x She also will apply the remaining amount of capitalized interest ($625 − $303. Form 1040 x 13 = $321. Form 1040 x 87) to the principal payments in the order in which they are made until the balance is zero, and treat those amounts as interest for tax purposes. Form 1040 x Do Not Include As Interest You cannot claim a student loan interest deduction for any of the following items. Form 1040 x Interest you paid on a loan if, under the terms of the loan, you are not legally obligated to make interest payments. Form 1040 x Loan origination fees that are payments for property or services provided by the lender, such as commitment fees or processing costs. Form 1040 x Interest you paid on a loan to the extent payments were made through your participation in the National Health Service Corps Loan Repayment Program (the “NHSC Loan Repayment Program”) or certain other loan repayment assistance programs. Form 1040 x For more information, see Student Loan Repayment Assistance in chapter 5, Student Loan Cancellations and Repayment Assistance. Form 1040 x When Must Interest Be Paid You can deduct all interest you paid during the year on your student loan, including voluntary payments, until the loan is paid off. Form 1040 x Can You Claim the Deduction Generally, you can claim the deduction if all of the following requirements are met. Form 1040 x Your filing status is any filing status except married filing separately. Form 1040 x No one else is claiming an exemption for you on his or her tax return. Form 1040 x You are legally obligated to pay interest on a qualified student loan. Form 1040 x You paid interest on a qualified student loan. Form 1040 x Claiming an exemption for you. Form 1040 x   Another taxpayer is claiming an exemption for you if he or she lists your name and other required information on his or her Form 1040 (or Form 1040A), line 6c, or Form 1040NR, line 7c. Form 1040 x Example 1. Form 1040 x During 2013, Josh paid $600 interest on his qualified student loan. Form 1040 x Only he is legally obligated to make the payments. Form 1040 x No one claimed an exemption for Josh for 2013. Form 1040 x Assuming all other requirements are met, Josh can deduct the $600 of interest he paid on his 2013 Form 1040 or 1040A. Form 1040 x Example 2. Form 1040 x During 2013, Jo paid $1,100 interest on her qualified student loan. Form 1040 x Only she is legally obligated to make the payments. Form 1040 x Jo's parents claimed an exemption for her on their 2013 tax return. Form 1040 x In this case, neither Jo nor her parents may deduct the student loan interest Jo paid in 2013. Form 1040 x Interest paid by others. Form 1040 x   If you are the person legally obligated to make interest payments and someone else makes a payment of interest on your behalf, you are treated as receiving the payments from the other person and, in turn, paying the interest. Form 1040 x Example 1. Form 1040 x Darla obtained a qualified student loan to attend college. Form 1040 x After Darla's graduation from college, she worked as an intern for a nonprofit organization. Form 1040 x As part of the internship program, the nonprofit organization made an interest payment on behalf of Darla. Form 1040 x This payment was treated as additional compensation and reported in box 1 of her Form W-2. Form 1040 x Assuming all other qualifications are met, Darla can deduct this payment of interest on her tax return. Form 1040 x Example 2. Form 1040 x Ethan obtained a qualified student loan to attend college. Form 1040 x After graduating from college, the first monthly payment on his loan was due in December. Form 1040 x As a gift, Ethan's mother made this payment for him. Form 1040 x No one is claiming a dependency exemption for Ethan on his or her tax return. Form 1040 x Assuming all other qualifications are met, Ethan can deduct this payment of interest on his tax return. Form 1040 x No Double Benefit Allowed You cannot deduct as interest on a student loan any amount that is an allowable deduction under any other provision of the tax law (for example, as home mortgage interest). Form 1040 x Figuring the Deduction Your student loan interest deduction for 2013 is generally the smaller of: $2,500, or The interest you paid in 2013. Form 1040 x However, the amount determined above may be gradually reduced (phased out) or eliminated based on your filing status and MAGI as explained below. Form 1040 x You can use Worksheet 4-1. Form 1040 x Student Loan Interest Deduction Worksheet (at the end of this chapter) to figure both your MAGI and your deduction. Form 1040 x Form 1098-E. Form 1040 x   To help you figure your student loan interest deduction, you should receive Form 1098-E. Form 1040 x Generally, an institution (such as a bank or governmental agency) that received interest payments of $600 or more during 2013 on one or more qualified student loans must send Form 1098-E (or acceptable substitute) to each borrower by January 31, 2014. Form 1040 x   For qualified student loans taken out before September 1, 2004, the institution is required to include on Form 1098-E only payments of stated interest. Form 1040 x Other interest payments, such as certain loan origination fees and capitalized interest, may not appear on the form you receive. Form 1040 x However, if you pay qualifying interest that is not included on Form 1098-E, you can also deduct those amounts. Form 1040 x See Allocating Payments Between Interest and Principal , earlier. Form 1040 x    The lender may ask for a completed Form W-9S, or similar statement to obtain the borrower's name, address, and taxpayer identification number. Form 1040 x The form may also be used by the borrower to certify that the student loan was incurred solely to pay for qualified education expenses. Form 1040 x Effect of the Amount of Your Income on the Amount of Your Deduction The amount of your student loan interest deduction is phased out (gradually reduced) if your MAGI is between $60,000 and $75,000 ($125,000 and $155,000 if you file a joint return). Form 1040 x You cannot take a student loan interest deduction if your MAGI is $75,000 or more ($155,000 or more if you file a joint return). Form 1040 x Modified adjusted gross income (MAGI). Form 1040 x   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return before subtracting any deduction for student loan interest. Form 1040 x However, as discussed below, there may be other modifications. Form 1040 x Table 4-2 shows how the amount of your MAGI can affect your student loan interest deduction. Form 1040 x Table 4-2. Form 1040 x Effect of MAGI on Student Loan Interest Deduction IF your filing status is. Form 1040 x . Form 1040 x . Form 1040 x AND your MAGI is. Form 1040 x . Form 1040 x . Form 1040 x THEN your student loan interest deduction is. Form 1040 x . Form 1040 x . Form 1040 x single,  head of household, or qualifying widow(er) not more than $60,000 not affected by the phaseout. Form 1040 x more than $60,000  but less than $75,000 reduced because of the phaseout. Form 1040 x $75,000 or more eliminated by the phaseout. Form 1040 x married filing joint return not more than $125,000 not affected by the phaseout. Form 1040 x more than $125,000 but less than $155,000 reduced because of the phaseout. Form 1040 x $155,000 or more eliminated by the phaseout. Form 1040 x MAGI when using Form 1040A. Form 1040 x   If you file Form 1040A, your MAGI is the AGI on line 22 of that form figured without taking into account any amount on line 18 (student loan interest deduction) and line 19 (tuition and fees deduction). Form 1040 x MAGI when using Form 1040. Form 1040 x   If you file Form 1040, your MAGI is the AGI on line 38 of that form figured without taking into account any amount on line 33 (student loan interest deduction), line 34 (tuition and fees deduction), or line 35 (domestic production activities deduction), and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Form 1040 x MAGI when using Form 1040NR. Form 1040 x   If you file Form 1040NR, your MAGI is the AGI on line 36 of that form figured without taking into account any amount on line 33 (student loan interest deduction) and line 34 (domestic production activities deduction). Form 1040 x MAGI when using Form 1040NR-EZ. Form 1040 x   If you file Form 1040NR-EZ, your MAGI is the AGI on line 10 of that form figured without taking into account any amount on line 9 (student loan interest deduction). Form 1040 x Phaseout. Form 1040 x   If your MAGI is within the range of incomes where the credit must be reduced, you must figure your reduced deduction. Form 1040 x To figure the phaseout, multiply your interest deduction (before the phaseout) by a fraction. Form 1040 x The numerator is your MAGI minus $60,000 ($125,000 in the case of a joint return). Form 1040 x The denominator is $15,000 ($30,000 in the case of a joint return). Form 1040 x Subtract the result from your deduction (before the phaseout) to give you the amount you can deduct. Form 1040 x Example 1. Form 1040 x During 2013 you paid $800 interest on a qualified student loan. Form 1040 x Your 2013 MAGI is $145,000 and you are filing a joint return. Form 1040 x You must reduce your deduction by $533, figured as follows. Form 1040 x   $800 × $145,000 − $125,000  $30,000 = $533   Your reduced student loan interest deduction is $267 ($800 − $533). Form 1040 x Example 2. Form 1040 x The facts are the same as in Example 1 except that you paid $2,750 interest. Form 1040 x Your maximum deduction for 2013 is $2,500. Form 1040 x You must reduce your maximum deduction by $1,667, figured as follows. Form 1040 x   $2,500 × $145,000 − $125,000  $30,000 = $1,667   In this example, your reduced student loan interest deduction is $833 ($2,500 − $1,667). Form 1040 x Which Worksheet To Use Generally, you figure the deduction using the Student Loan Interest Deduction Worksheet in the instructions for Form 1040, Form 1040A, or Form 1040NR. Form 1040 x However, if you are filing Form 2555, Foreign Earned Income, Form 2555-EZ, Foreign Earned Income Exclusion, or Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa, or you are excluding income from sources within Puerto Rico, you must complete Worksheet 4-1. Form 1040 x Student Loan Interest Deduction Worksheet at the end of this chapter. Form 1040 x Claiming the Deduction The student loan interest deduction is an adjustment to income. Form 1040 x To claim the deduction, enter the allowable amount on line 33 (Form 1040), line 18 (Form 1040A), line 33 (Form 1040NR), or line 9 (Form 1040NR-EZ). Form 1040 x Worksheet 4-1. Form 1040 x Student Loan Interest Deduction Worksheet Use this worksheet instead of the worksheet in the Form 1040 instructions if you are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from sources within Puerto Rico. Form 1040 x Before using this worksheet, you must complete Form 1040, lines 7 through 32, plus any amount to be entered on the dotted line next to line 36. Form 1040 x 1. Form 1040 x Enter the total interest you paid in 2013 on qualified student loans. Form 1040 x Do not enter  more than $2,500 1. Form 1040 x   2. Form 1040 x Enter the amount from Form 1040, line 22 2. Form 1040 x       3. Form 1040 x Enter the total of the amounts from Form 1040,  lines 23 through 32 3. Form 1040 x           4. Form 1040 x Enter the total of any amounts entered on the dotted line next to Form 1040, line 36 4. Form 1040 x           5. Form 1040 x Add lines 3 and 4 5. Form 1040 x       6. Form 1040 x Subtract line 5 from line 2 6. Form 1040 x       7. Form 1040 x Enter any foreign earned income exclusion and/or housing  exclusion (Form 2555, line 45, or Form 2555-EZ, line 18) 7. Form 1040 x       8. Form 1040 x Enter any foreign housing deduction (Form 2555, line 50) 8. Form 1040 x       9. Form 1040 x Enter the amount of income from Puerto Rico you are excluding 9. Form 1040 x       10. Form 1040 x Enter the amount of income from American Samoa  you are excluding (Form 4563, line 15) 10. Form 1040 x       11. Form 1040 x Add lines 6 through 10. Form 1040 x This is your modified adjusted gross income 11. Form 1040 x   12. Form 1040 x Enter the amount shown below for your filing status 12. Form 1040 x     •Single, head of household, or qualifying widow(er)—$60,000       •Married filing jointly—$125,000     13. Form 1040 x Is the amount on line 11 more than the amount on line 12?       □ No. Form 1040 x Skip lines 13 and 14, enter -0- on line 15, and go to line 16. Form 1040 x       □ Yes. Form 1040 x Subtract line 12 from line 11 13. Form 1040 x   14. Form 1040 x Divide line 13 by $15,000 ($30,000 if married filing jointly). Form 1040 x Enter the result as a decimal  (rounded to at least three places). Form 1040 x If the result is 1. Form 1040 x 000 or more, enter 1. Form 1040 x 000 14. Form 1040 x . Form 1040 x 15. Form 1040 x Multiply line 1 by line 14 15. Form 1040 x   16. Form 1040 x Student loan interest deduction. Form 1040 x Subtract line 15 from line 1. Form 1040 x Enter the result here  and on Form 1040, line 33. Form 1040 x Do not include this amount in figuring any other  deduction on your return (such as on Schedule A, C, E, etc. Form 1040 x ) 16. Form 1040 x   Prev  Up  Next   Home   More Online Publications
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The Form 1040 X

Form 1040 x Publication 561 - Main Contents Table of Contents What Is Fair Market Value (FMV)?Factors. Form 1040 x Stock. Form 1040 x Options. Form 1040 x 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). Form 1040 x 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. Form 1040 x Fair market value. Form 1040 x   Fair market value (FMV) is the price that property would sell for on the open market. Form 1040 x 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. Form 1040 x If you put a restriction on the use of property you donate, the FMV must reflect that restriction. Form 1040 x Example 1. Form 1040 x 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. Form 1040 x Usually, such items are worth far less than what you paid for them. Form 1040 x Example 2. Form 1040 x 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. Form 1040 x Factors. Form 1040 x   In making and supporting the valuation of property, all factors affecting value are relevant and must be considered. Form 1040 x These include: The cost or selling price of the item, Sales of comparable properties, Replacement cost, and Opinions of experts. Form 1040 x   These factors are discussed later. Form 1040 x Also, see Table 1 for a summary of questions to ask as you consider each factor. Form 1040 x Date of contribution. Form 1040 x   Ordinarily, the date of a contribution is the date that the transfer of the property takes place. Form 1040 x Stock. Form 1040 x   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. Form 1040 x If the certificate is mailed and received through the regular mail, it is the date of mailing. Form 1040 x 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. Form 1040 x Options. Form 1040 x   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. Form 1040 x The amount of the contribution is the FMV of the property on the date the option is exercised minus the exercise price. Form 1040 x Example. Form 1040 x You grant an option to a local university, which is a qualified organization, to buy real property. Form 1040 x Under the option, the university could buy the property at any time during a 2-year period for $40,000. Form 1040 x The FMV of the property on the date the option is granted is $50,000. Form 1040 x In the following tax year, the university exercises the option. Form 1040 x The FMV of the property on the date the option is exercised is $55,000. Form 1040 x 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. Form 1040 x 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. Form 1040 x Usually it is not that simple. Form 1040 x Using such formulas, etc. Form 1040 x , seldom results in an acceptable determination of FMV. Form 1040 x There is no single formula that always applies when determining the value of property. Form 1040 x This is not to say that a valuation is only guesswork. Form 1040 x You must consider all the facts and circumstances connected with the property, such as its desirability, use, and scarcity. Form 1040 x For example, donated furniture should not be evaluated at some fixed rate such as 15% of the cost of new replacement furniture. Form 1040 x When the furniture is contributed, it may be out of style or in poor condition, therefore having little or no market value. Form 1040 x On the other hand, it may be an antique, the value of which could not be determined by using any formula. Form 1040 x 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. Form 1040 x 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. Form 1040 x 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. Form 1040 x Example. Form 1040 x Tom Morgan, who is not a dealer in gems, bought an assortment of gems for $5,000 from a promoter. Form 1040 x 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. Form 1040 x 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. Form 1040 x Tom gave the gems to a qualified charity 13 months after buying them. Form 1040 x The selling price for these gems had not changed from the date of purchase to the date he donated them to charity. Form 1040 x The best evidence of FMV depends on actual transactions and not on some artificial estimate. Form 1040 x The $5,000 charged Tom and others is, therefore, the best evidence of the maximum FMV of the gems. Form 1040 x Terms of the purchase or sale. Form 1040 x   The terms of the purchase or sale should be considered in determining FMV if they influenced the price. Form 1040 x These terms include any restrictions, understandings, or covenants limiting the use or disposition of the property. Form 1040 x Rate of increase or decrease in value. Form 1040 x   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. Form 1040 x 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. Form 1040 x Example. Form 1040 x Bill Brown bought a painting for $10,000. Form 1040 x Thirteen months later he gave it to an art museum, claiming a charitable deduction of $15,000 on his tax return. Form 1040 x 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. Form 1040 x Arm's-length offer. Form 1040 x   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. Form 1040 x To rely on an offer, you should be able to show proof of the offer and the specific amount to be paid. Form 1040 x 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. Form 1040 x Sales of Comparable Properties The sales prices of properties similar to the donated property are often important in determining the FMV. Form 1040 x The weight to be given to each sale depends on the following. Form 1040 x The degree of similarity between the property sold and the donated property. Form 1040 x The time of the sale—whether it was close to the valuation date. Form 1040 x The circumstances of the sale—whether it was at arm's-length with a knowledgeable buyer and seller, with neither having to act. Form 1040 x The conditions of the market in which the sale was made—whether unusually inflated or deflated. Form 1040 x The comparable sales method of valuing real estate is explained later under Valuation of Various Kinds of Property. Form 1040 x Example 1. Form 1040 x 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. Form 1040 x 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. Form 1040 x 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. Form 1040 x Thirteen months later she gave all the Bibles to a church that she selected from a list provided by the promoter. Form 1040 x At the time of her donation, wholesale dealers were selling similar quantities of Bibles to the general public for $10,000. Form 1040 x 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. Form 1040 x Example 2. Form 1040 x The facts are the same as in Example 1, except that the promoter gave Mary Black a second option. Form 1040 x 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. Form 1040 x The principal and interest on the note would not be due for 12 years. Form 1040 x 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. Form 1040 x 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. Form 1040 x At the time of the gift, the promoter was selling similar lots of Bibles for either $10,000 or $30,000. Form 1040 x The difference between the two prices was solely at the discretion of the buyer. Form 1040 x The promoter was a willing seller for $10,000. Form 1040 x 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. Form 1040 x Replacement Cost The cost of buying, building, or manufacturing property similar to the donated item should be considered in determining FMV. Form 1040 x However, there must be a reasonable relationship between the replacement cost and the FMV. Form 1040 x The replacement cost is the amount it would cost to replace the donated item on the valuation date. Form 1040 x Often there is no relationship between the replacement cost and the FMV. Form 1040 x If the supply of the donated property is more or less than the demand for it, the replacement cost becomes less important. Form 1040 x To determine the replacement cost of the donated property, find the “estimated replacement cost new. Form 1040 x ” Then subtract from this figure an amount for depreciation due to the physical condition and obsolescence of the donated property. Form 1040 x 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. Form 1040 x ” 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. Form 1040 x For an expert's opinion to deserve much weight, the facts must support the opinion. Form 1040 x For additional information, see Appraisals, later. Form 1040 x Table 1. Form 1040 x Factors That Affect FMV IF the factor you are considering is. Form 1040 x . Form 1040 x . Form 1040 x THEN you should ask these questions. Form 1040 x . Form 1040 x . Form 1040 x     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. Form 1040 x 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. Form 1040 x When you rely on sales of comparable property, the sales must have been made in an open market. Form 1040 x 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. Form 1040 x For example, liquidation sale prices usually do not indicate the FMV. Form 1040 x 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. Form 1040 x Selection of Comparable Sales Using sales of comparable property is an important method for determining the FMV of donated property. Form 1040 x However, the amount of weight given to a sale depends on the degree of similarity between the comparable and the donated properties. Form 1040 x 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. Form 1040 x Example. Form 1040 x You give a rare, old book to your former college. Form 1040 x The book is a third edition and is in poor condition because of a missing back cover. Form 1040 x 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. Form 1040 x Although the contents are the same, the books are not at all similar because of the different editions and their physical condition. Form 1040 x Little consideration would be given to the selling price of the $300 property by knowledgeable buyers or sellers. Form 1040 x Future Events You may not consider unexpected events happening after your donation of property in making the valuation. Form 1040 x 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. Form 1040 x Example. Form 1040 x You give farmland to a qualified charity. Form 1040 x The transfer provides that your mother will have the right to all income and full use of the property for her life. Form 1040 x 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. Form 1040 x You may not take a higher deduction because the charity received full use and possession of the land only 1 week after the transfer. Form 1040 x 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. Form 1040 x Example. Form 1040 x You give all your rights in a successful patent to your favorite charity. Form 1040 x Your records show that before the valuation date there were three stages in the patent's history of earnings. Form 1040 x First, there was rapid growth in earnings when the invention was introduced. Form 1040 x Then, there was a period of high earnings when the invention was being exploited. Form 1040 x Finally, there was a decline in earnings when competing inventions were introduced. Form 1040 x The entire history of earnings may be relevant in estimating the future earnings. Form 1040 x However, the appraiser must not rely too much on the stage of rapid growth in earnings, or of high earnings. Form 1040 x The market conditions at those times do not represent the condition of the market at the valuation date. Form 1040 x What is most significant is the trend of decline in earnings up to the valuation date. Form 1040 x For more information about donations of patents, see Patents, later. Form 1040 x Valuation of Various Kinds of Property This section contains information on determining the FMV of ordinary kinds of donated property. Form 1040 x For information on appraisals, see Appraisals, later. Form 1040 x Household Goods The FMV of used household goods, such as furniture, appliances, and linens, is usually much lower than the price paid when new. Form 1040 x Such used property may have little or no market value because of its worn condition. Form 1040 x It may be out of style or no longer useful. Form 1040 x You cannot take a deduction for household goods donated after August 17, 2006, unless they are in good used condition or better. Form 1040 x 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. Form 1040 x See Deduction over $500 for certain clothing or household items, later. Form 1040 x If the property is valuable because it is old or unique, see the discussion under Paintings, Antiques, and Other Objects of Art. Form 1040 x Used Clothing Used clothing and other personal items are usually worth far less than the price you paid for them. Form 1040 x Valuation of items of clothing does not lend itself to fixed formulas or methods. Form 1040 x 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. Form 1040 x You cannot take a deduction for clothing donated after August 17, 2006, unless it is in good used condition or better. Form 1040 x 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. Form 1040 x See Deduction over $500 for certain clothing or household items, later. Form 1040 x For valuable furs or very expensive gowns, a Form 8283 may have to be sent with your tax return. Form 1040 x 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. Form 1040 x 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. Form 1040 x If not in fashion, the possibility of having the property redesigned, recut, or reset should be reported in the appraisal. Form 1040 x The stone's coloring, weight, cut, brilliance, and flaws should be reported and analyzed. Form 1040 x Sentimental personal value has no effect on FMV. Form 1040 x But if the jewelry was owned by a famous person, its value might increase. Form 1040 x 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. Form 1040 x Examples of information that should be included in appraisals of art objects—paintings in particular—are found later under Qualified Appraisal. Form 1040 x Art valued at $20,000 or more. Form 1040 x   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. Form 1040 x 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. Form 1040 x Art valued at $50,000 or more. Form 1040 x   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. Form 1040 x You must request the statement before filing the tax return that reports the donation. Form 1040 x Your request must include the following. Form 1040 x A copy of a qualified appraisal of the item. Form 1040 x See Qualified Appraisal, later. Form 1040 x 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. Form 1040 x Add $250 for each item in excess of three. Form 1040 x A completed Form 8283, Section B. Form 1040 x The location of the IRS territory that has examination responsibility for your return. Form 1040 x If your request lacks essential information, you will be notified and given 30 days to provide the missing information. Form 1040 x   Send your request to: Internal Revenue Service Attention: Art Appraisal (C:AP:ART) P. Form 1040 x O. Form 1040 x Box 27720 McPherson Station Washington, DC 20038 Refunds. Form 1040 x   You can withdraw your request for a Statement of Value at any time before it is issued. Form 1040 x However, the IRS will not refund the user fee if you do. Form 1040 x   If the IRS declines to issue a Statement of Value in the interest of efficient tax administration, the IRS will refund the user fee. Form 1040 x Authenticity. Form 1040 x   The authenticity of the donated art must be determined by the appraiser. Form 1040 x Physical condition. Form 1040 x   Important items in the valuation of antiques and art are physical condition and extent of restoration. Form 1040 x These have a significant effect on the value and must be fully reported in an appraisal. Form 1040 x An antique in damaged condition, or lacking the “original brasses,” may be worth much less than a similar piece in excellent condition. Form 1040 x Art appraisers. Form 1040 x   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. Form 1040 x Certain art dealers or appraisers specialize, for example, in old masters, modern art, bronze sculpture, etc. Form 1040 x 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. Form 1040 x They can report more recent comparable sales to support their opinion. Form 1040 x   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. Form 1040 x It lists museums both by state and by category. Form 1040 x   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. Form 1040 x The Yellow Pages often list specialized art and antique dealers, auctioneers, and art appraisers. Form 1040 x You may be able to find a qualified appraiser on the Internet. Form 1040 x You may also contact associations of dealers for guidance. Form 1040 x 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. Form 1040 x Most common are rare books, autographs, sports memorabilia, dolls, manuscripts, stamps, coins, guns, phonograph records, and natural history items. Form 1040 x Many of the elements of valuation that apply to paintings and other objects of art, discussed earlier, also apply to miscellaneous collections. Form 1040 x Reference material. Form 1040 x   Publications available to help you determine the value of many kinds of collections include catalogs, dealers' price lists, and specialized hobby periodicals. Form 1040 x When using one of these price guides, you must use the current edition at the date of contribution. Form 1040 x However, these sources are not always reliable indicators of FMV and should be supported by other evidence. Form 1040 x   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. Form 1040 x The price an item sold for in an auction may have been the result of a rigged sale or a mere bidding duel. Form 1040 x The appraiser must analyze the reference material, and recognize and make adjustments for misleading entries. Form 1040 x If you are donating a valuable collection, you should get an appraisal. Form 1040 x 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. Form 1040 x Stamp collections. Form 1040 x   Most libraries have catalogs or other books that report the publisher's estimate of values. Form 1040 x Generally, two price levels are shown for each stamp: the price postmarked and the price not postmarked. Form 1040 x Stamp dealers generally know the value of their merchandise and are able to prepare satisfactory appraisals of valuable collections. Form 1040 x Coin collections. Form 1040 x   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. Form 1040 x Like many other collectors' items, the value of a coin depends on the demand for it, its age, and its rarity. Form 1040 x Another important factor is the coin's condition. Form 1040 x 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. Form 1040 x   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. Form 1040 x Books. Form 1040 x   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. Form 1040 x This is difficult to do and, except for a collection of little value, should be done by a specialized appraiser. Form 1040 x Within the general category of literary property, there are dealers who specialize in certain areas, such as Americana, foreign imports, Bibles, and scientific books. Form 1040 x Modest value of collection. Form 1040 x   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. Form 1040 x   A book that is very old, or very rare, is not necessarily valuable. Form 1040 x There are many books that are very old or rare, but that have little or no market value. Form 1040 x Condition of book. Form 1040 x   The condition of a book may have a great influence on its value. Form 1040 x Collectors are interested in items that are in fine, or at least good, condition. Form 1040 x When a book has a missing page, a loose binding, tears, stains, or is otherwise in poor condition, its value is greatly lowered. Form 1040 x Other factors. Form 1040 x   Some other factors in the valuation of a book are the kind of binding (leather, cloth, paper), page edges, and illustrations (drawings and photographs). Form 1040 x Collectors usually want first editions of books. Form 1040 x However, because of changes or additions, other editions are sometimes worth as much as, or more than, the first edition. Form 1040 x Manuscripts, autographs, diaries, and similar items. Form 1040 x   When these items are handwritten, or at least signed by famous people, they are often in demand and are valuable. Form 1040 x The writings of unknowns also may be of value if they are of unusual historical or literary importance. Form 1040 x Determining the value of such material is difficult. Form 1040 x 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. Form 1040 x The appraiser determines a value in these cases by applying knowledge and judgment to such factors as comparable sales and conditions. Form 1040 x Signatures. Form 1040 x   Signatures, or sets of signatures, that were cut from letters or other papers usually have little or no value. Form 1040 x But complete sets of the signatures of U. Form 1040 x S. Form 1040 x presidents are in demand. Form 1040 x Cars, Boats, and Aircraft If you donate a car, a boat, or an aircraft to a charitable organization, its FMV must be determined. Form 1040 x 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. Form 1040 x Prices are reported for each make, model, and year. Form 1040 x These guides also provide estimates for adjusting for unusual equipment, unusual mileage, and physical condition. Form 1040 x The prices are not “official,” and these publications are not considered an appraisal of any specific donated property. Form 1040 x But they do provide clues for making an appraisal and suggest relative prices for comparison with current sales and offerings in your area. Form 1040 x These publications are sometimes available from public libraries or at a bank, credit union, or finance company. Form 1040 x You can also find pricing information about used cars on the Internet. Form 1040 x 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. Form 1040 x 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. Form 1040 x 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. Form 1040 x Example. Form 1040 x You donate a used car in poor condition to a local high school for use by students studying car repair. Form 1040 x A used car guide shows the dealer retail value for this type of car in poor condition is $1,600. Form 1040 x However, the guide shows the price for a private party sale of the car is only $750. Form 1040 x The FMV of the car is considered to be no more than $750. Form 1040 x Boats. Form 1040 x   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. Form 1040 x More information. Form 1040 x   Your deduction for a donated car, boat, or airplane generally is limited to the gross proceeds from its sale by the qualified organization. Form 1040 x This rule applies if the claimed value of the donated vehicle is more than $500. Form 1040 x In certain cases, you can deduct the vehicle's FMV. Form 1040 x For details, see Publication 526. Form 1040 x 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. Form 1040 x For more information, see Publication 526. Form 1040 x 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. Form 1040 x 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. Form 1040 x Generally, this means your deduction is the lesser of the property's FMV or its basis. Form 1040 x For details, see Publication 526. Form 1040 x Stocks and Bonds The value of stocks and bonds is the FMV of a share or bond on the valuation date. Form 1040 x See Date of contribution, earlier, under What Is Fair Market Value (FMV). Form 1040 x Selling prices on valuation date. Form 1040 x   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. Form 1040 x For example, if the highest selling price for a share was $11, and the lowest $9, the average price is $10. Form 1040 x You get the average price by adding $11 and $9 and dividing the sum by 2. Form 1040 x No sales on valuation date. Form 1040 x   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. Form 1040 x Then you weight these averages in inverse order by the respective number of trading days between the selling dates and the valuation date. Form 1040 x Example. Form 1040 x   On the day you gave stock to a qualified organization, there were no sales of the stock. Form 1040 x 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. Form 1040 x 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. Form 1040 x   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. Form 1040 x This applies if these prices are published in a generally available listing or publication of general circulation. Form 1040 x 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. Form 1040 x See also Unavailable prices or closely held corporation, later. Form 1040 x Bid and asked prices on valuation date. Form 1040 x   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. Form 1040 x Example. Form 1040 x 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. Form 1040 x The FMV is $15, the average price between the bid and asked prices. Form 1040 x No prices on valuation date. Form 1040 x   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. Form 1040 x Both dates must be within a reasonable period. Form 1040 x 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. Form 1040 x Example. Form 1040 x On the day you gave stock to a qualified organization, no prices were available. Form 1040 x Bona fide bid and asked prices 3 days before the valuation date were $10 and 2 days after the valuation date were $15. Form 1040 x 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. Form 1040 x   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. Form 1040 x Large blocks of stock. Form 1040 x   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. Form 1040 x On the other hand, market forces may exist that will afford higher prices for large blocks of stock. Form 1040 x 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. Form 1040 x Unavailable prices or closely held corporation. Form 1040 x   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. Form 1040 x For bonds, the soundness of the security, the interest yield, the date of maturity, and other relevant factors. Form 1040 x For shares of stock, the company's net worth, prospective earning power and dividend-paying capacity, and other relevant factors. Form 1040 x Other factors. Form 1040 x   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. Form 1040 x For preferred stock, the most important factors are its yield, dividend coverage, and protection of its liquidation preference. Form 1040 x   You should keep complete financial and other information on which the valuation is based. Form 1040 x 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. Form 1040 x Restricted securities. Form 1040 x   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. Form 1040 x These restricted securities usually trade at a discount in relation to freely traded securities. Form 1040 x   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. Form 1040 x Real Estate Because each piece of real estate is unique and its valuation is complicated, a detailed appraisal by a professional appraiser is necessary. Form 1040 x The appraiser must be thoroughly trained in the application of appraisal principles and theory. Form 1040 x 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. Form 1040 x 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. Form 1040 x 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. Form 1040 x In general, there are three main approaches to the valuation of real estate. Form 1040 x An appraisal may require the combined use of two or three methods rather than one method only. Form 1040 x 1. Form 1040 x Comparable Sales The comparable sales method compares the donated property with several similar properties that have been sold. Form 1040 x 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. Form 1040 x 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. Form 1040 x , Soil characteristics, vegetative cover, and status of mineral rights, and Other factors affecting value. Form 1040 x 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. Form 1040 x The comparable selling prices must be adjusted to account for differences between the sale property and the donated property. Form 1040 x 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. Form 1040 x 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. Form 1040 x 2. Form 1040 x 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. Form 1040 x The key elements are the determination of the income to be capitalized and the rate of capitalization. Form 1040 x 3. Form 1040 x Replacement Cost New or Reproduction Cost Minus Observed Depreciation This method, used alone, usually does not result in a determination of FMV. Form 1040 x 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. Form 1040 x Of course, this reasoning does not apply if a similar property cannot be created because of location, unusual construction, or some other reason. Form 1040 x Generally, this method serves to support the value determined from other methods. Form 1040 x When the replacement cost method is applied to improved realty, the land and improvements are valued separately. Form 1040 x 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. Form 1040 x This cost represents the total cost of labor and material, overhead, and profit. Form 1040 x 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. Form 1040 x 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. Form 1040 x 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. Form 1040 x The value of the goodwill of the business should also be taken into consideration. Form 1040 x You should keep complete financial and other information on which you base the valuation. Form 1040 x 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. Form 1040 x 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. Form 1040 x The valuation of these commercial annuity contracts and of insurance policies is discussed later under Certain Life Insurance and Annuity Contracts. Form 1040 x To determine present value, you must know the applicable interest rate and use actuarial tables. Form 1040 x Interest rate. Form 1040 x   The applicable interest rate varies. Form 1040 x It is announced monthly in a news release and published in the Internal Revenue Bulletin as a Revenue Ruling. Form 1040 x The interest rate to use is under the heading “Rate Under Section 7520” for a given month and year. Form 1040 x You can call the IRS office at 1-800-829-1040 to obtain this rate. Form 1040 x Actuarial tables. Form 1040 x   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. Form 1040 x   Use the valuation tables set forth in IRS Publications 1457, Actuarial Values (Book Aleph), and 1458, Actuarial Values (Book Beth). Form 1040 x 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. Form 1040 x 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. Form 1040 x   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. Form 1040 x Publication 1458 contains the factors for valuing the remainder interest in a charitable remainder unitrust. Form 1040 x You can download Publications 1457 and 1458 from www. Form 1040 x irs. Form 1040 x gov. Form 1040 x In addition, they are available for purchase via the website of the U. Form 1040 x S. Form 1040 x Government Printing Office, by phone at (202) 512-1800, or by mail from the: Superintendent of Documents P. Form 1040 x O. Form 1040 x 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. Form 1040 x 642(c)-6(e)(6), transfers to charitable remainder unitrusts in Regulation 1. Form 1040 x 664-4(e), and other transfers in Regulation 20. Form 1040 x 2031-7(d)(6). Form 1040 x Special factors. Form 1040 x   If you need a special factor for an actual transaction, you can request a letter ruling. Form 1040 x Be sure to include the date of birth of each person the duration of whose life may affect the value of the interest. Form 1040 x Also include copies of the relevant instruments. Form 1040 x IRS charges a user fee for providing special factors. Form 1040 x   For more information about requesting a ruling, see Revenue Procedure 2006-1 (or annual update), 2006-1 I. Form 1040 x R. Form 1040 x B. Form 1040 x 1. Form 1040 x Revenue Procedure 2006-1 is available at www. Form 1040 x irs. Form 1040 x gov/irb/2006-01_IRB/ar06. Form 1040 x html. Form 1040 x   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. Form 1040 x 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. Form 1040 x 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. Form 1040 x 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. Form 1040 x 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. Form 1040 x 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. Form 1040 x 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. Form 1040 x To determine this value, you must know the FMV of the property on the date of the contribution. Form 1040 x Multiply this value by the appropriate factor. Form 1040 x Publications 1457 and 1458 contain these factors. Form 1040 x You must make an adjustment for depreciation or depletion using the factors shown in Publication 1459, Actuarial Values (Book Gimel). Form 1040 x You can use the factors for the month in which you made the contribution or for either of the two months preceding that month. Form 1040 x See the earlier discussion on Annuities, Interests for Life or Terms of Years, Remainders, and Reversions. Form 1040 x You can download Publication 1459 from www. Form 1040 x irs. Form 1040 x gov. Form 1040 x 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. Form 1040 x 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. Form 1040 x This rule also applies to a gift of a remainder interest that includes property that is part depletable and part not depletable. Form 1040 x Take into account depreciation or depletion only for the property that is subject to depreciation or depletion. Form 1040 x For more information, see section 1. Form 1040 x 170A-12 of the Income Tax Regulations. Form 1040 x 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. Form 1040 x It must extend over the entire term of your interest in the property. Form 1040 x 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. Form 1040 x You can claim a deduction for the contribution if you do not have any other interest in the property. Form 1040 x To figure the value of a contribution involving a partial interest, see Publication 1457. Form 1040 x 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. Form 1040 x 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. Form 1040 x Qualified organization. Form 1040 x   For purposes of a qualified conservation contribution, a qualified organization is: A governmental unit, A publicly supported charitable, religious, scientific, literary, educational, etc. Form 1040 x , organization, or An organization that is controlled by, and operated for the exclusive benefit of, a governmental unit or a publicly supported charity. Form 1040 x The organization also must have a commitment to protect the conservation purposes of the donation and must have the resources to enforce the restrictions. Form 1040 x Conservation purposes. Form 1040 x   Your contribution must be made only for one of the following conservation purposes. Form 1040 x Preserving land areas for outdoor recreation by, or for the education of, the general public. Form 1040 x Protecting a relatively natural habitat of fish, wildlife, or plants, or a similar ecosystem. Form 1040 x Preserving open space, including farmland and forest land, if it yields a significant public benefit. Form 1040 x It must be either for the scenic enjoyment of the general public or under a clearly defined federal, state, or local governmental conservation policy. Form 1040 x Preserving a historically important land area or a certified historic structure. Form 1040 x There must be some visual public access to the property. Form 1040 x 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. Form 1040 x Building in registered historic district. Form 1040 x   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. Form 1040 x 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. Form 1040 x 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. Form 1040 x 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. Form 1040 x   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. Form 1040 x See Form 8283-V, Payment Voucher for Filing Fee Under Section 170(f)(13), and its instructions. Form 1040 x Qualified real property interest. Form 1040 x   This is any of the following interests in real property. Form 1040 x 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). Form 1040 x A remainder interest. Form 1040 x A restriction (granted in perpetuity) on the use that may be made of the real property. Form 1040 x Valuation. Form 1040 x   A qualified real property interest described in (1) should be valued in a manner that is consistent with the type of interest transferred. Form 1040 x If you transferred all the interest in the property, the FMV of the property is the amount of the contribution. Form 1040 x If you do not transfer the mineral interest, the FMV of the surface rights in the property is the amount of the contribution. Form 1040 x   If you owned only a remainder interest or an income interest (life estate), see Undivided Part of Your Entire Interest, earlier. Form 1040 x If you owned the entire property but transferred only a remainder interest (item (2)), see Remainder Interest in Real Property, earlier. Form 1040 x   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. Form 1040 x 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. Form 1040 x   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. Form 1040 x You should also consider any zoning, conservation, or historical preservation laws that would restrict development. Form 1040 x Granting an easement may increase, rather than reduce, the value of property, and in such a situation no deduction would be allowed. Form 1040 x Example. Form 1040 x   You own 10 acres of farmland. Form 1040 x Similar land in the area has an FMV of $2,000 an acre. Form 1040 x However, land in the general area that is restricted solely to farm use has an FMV of $1,500 an acre. Form 1040 x Your county wants to preserve open space and prevent further development in your area. Form 1040 x   You grant to the county an enforceable open space easement in perpetuity on 8 of the 10 acres, restricting its use to farmland. Form 1040 x 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. Form 1040 x More information. Form 1040 x   For more information about qualified conservation contributions, see Publication 526. Form 1040 x Appraisals Appraisals are not necessary for items of property for which you claim a deduction of $5,000 or less. Form 1040 x (There is one exception, described next, for certain clothing and household items. Form 1040 x ) However, you generally will need an appraisal for donated property for which you claim a deduction of more than $5,000. Form 1040 x There are exceptions. Form 1040 x See Deductions of More Than $5,000, later. Form 1040 x 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. Form 1040 x An appraisal must give all the facts on which to base an intelligent judgment of the value of the property. Form 1040 x 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. Form 1040 x The appraiser's opinion is never more valid than the facts on which it is based; without these facts it is simply a guess. Form 1040 x The opinion of a person claiming to be an expert is not binding on the Internal Revenue Service. Form 1040 x All facts associated with the donation must be considered. Form 1040 x Deduction over $500 for certain clothing or household items. Form 1040 x   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. Form 1040 x See Household Goods and Used Clothing, earlier. Form 1040 x Cost of appraisals. Form 1040 x   You may not take a charitable contribution deduction for fees you pay for appraisals of your donated property. Form 1040 x 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. Form 1040 x 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. Form 1040 x There are exceptions, discussed later. Form 1040 x You should keep the appraiser's report with your written records. Form 1040 x Records are discussed in Publication 526. Form 1040 x 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. Form 1040 x 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. Form 1040 x 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. Form 1040 x Exceptions. Form 1040 x   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. Form 1040 x   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. Form 1040 x Publicly traded securities. Form 1040 x   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. Form 1040 x Publicly traded securities that meet these requirements must be reported on Form 8283, Section A. Form 1040 x   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. Form 1040 x   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. Form 1040 x 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. Form 1040 x   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. Form 1040 x Bid and asked quotations are not taken into account. Form 1040 x   The computation period is weekly during October through December and monthly during January through September. Form 1040 x 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. Form 1040 x Nonpublicly traded stock. Form 1040 x   If you contribute nonpublicly traded stock, for which you claim a deduction of $10,000 or less, a qualified appraisal is not required. Form 1040 x However, you must attach Form 8283 to your tax return, with Section B, Parts I and IV, completed. Form 1040 x 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. Form 1040 x This does not apply to contributions of cash, inventory, publicly traded stock, or intellectual property. Form 1040 x 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. Form 1040 x 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. Form 1040 x You must also complete Form 8283, Section B, and attach it to your tax return. Form 1040 x See Deductions of More Than $5,000, earlier. Form 1040 x 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. Form 1040 x 170A-13(c)(3) and Notice 2006-96, 2006-46 I. Form 1040 x R. Form 1040 x B. Form 1040 x 902 (available at www. Form 1040 x irs. Form 1040 x gov/irb/2006-46_IRB/ar13. Form 1040 x 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). Form 1040 x 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. Form 1040 x 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. Form 1040 x Form 8283, Section B, must be attached to your tax return. Form 1040 x 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. Form 1040 x There are four exceptions. Form 1040 x If you claim a deduction of $20,000 or more for donations of art, you must attach a complete copy of the appraisal. Form 1040 x See Paintings, Antiques, and Other Objects of Art, earlier. Form 1040 x If you claim a deduction of more than $500,000 for a donation of property, you must attach the appraisal. Form 1040 x See Deductions of More Than $500,000, earlier. Form 1040 x 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. Form 1040 x See Deduction over $500 for certain clothing or household items, earlier. Form 1040 x 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. Form 1040 x See Building in registered historic district, earlier. Form 1040 x Prohibited appraisal fee. Form 1040 x   Generally, no part of the fee arrangement for a qualified appraisal can be based on a percentage of the appraised value of the property. Form 1040 x 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. Form 1040 x However, appraisals are not disqualified when an otherwise prohi