Charitable giving penalty of overvaluation

How to determine which overvaluation tax penalty applies?

If you are concerned about overvaluation penalty and want to figure out whether the 20% overvaluation penalty applies or the 40% overvaluation penalty applies, you need to consider each property claim for tax deduction separately for the 200% and 400% overvaluation thresholds.

Only one overvaluation

If on the same tax return, you overvalue Property A by 180% and you made an overvaluation of Property B by 250%, the overvaluation penalty may be imposed by the IRS only on Property B even though on an aggregate basis, your overvaluation on all your charitable contributions was more than 200%.

Two overvaluations

If two or more properties were overvalued by 200% or more, the resulting tax underpayment are combined to determine if the $5,000 tax underpayment threshold has been reached.

For example, Property C's overvaluation is 300% resulting in a $1,000 tax underpayment and Property D's overvaluation is 400% resulting in $4500 tax underpayment. Total tax underpayment exceeds $5000 so both overvaluations are subject to tax penalty by the IRS.

Using professional appraiser to do appraisal of your charitable contributions

If you have your charitable contributions appraised and you rely on professional appraisal reports, you may be able to avoid overvaluation penalties. You should also do your own investigation of the value of the property. A professional appraiser who knowingly make overvaluations of charitable contribution is subject to a $1,000 penalty.