For accountants and wealth managers advising high-net-worth clients, gifting real estate is a common strategy for minimizing estate taxes and transferring wealth to the next generation. However, the IRS maintains strict rules regarding the valuation of gifted property.
When transferring real estate in New York—whether it's a primary residence in Westchester or a fractional interest into a family trust—determining the exact fair market value is crucial for tax compliance and avoiding audit triggers.
IRS Form 8283 and Gift Tax Returns
When real estate is gifted to a charitable organization or transferred to family members where the value exceeds the annual gift tax exclusion, a formal appraisal is usually required to establish the property's Fair Market Value (FMV).
For charitable gifts of real estate over $5,000, IRS Form 8283 (Noncash Charitable Contributions) must be filed. Section B of this form requires a "Qualified Appraisal" prepared by a "Qualified Appraiser." The appraiser must actually sign the tax form, attesting to their qualifications and the property's value.
Fractional Interests and Family Limited Partnerships (FLPs)
Often, real estate isn't gifted outright. A client might gift a 25% interest in a property to a child or transfer the asset into a Family Limited Partnership (FLP). These situations require an even higher level of appraisal expertise.
The appraiser must first determine the 100% fee simple value of the real estate. Then, your CPA or valuation expert will apply discounts for lack of marketability (DLOM) or lack of control (DLOC) to the fractional share. The foundational real estate appraisal must be bulletproof to support these subsequent discounts.
Timing the Appraisal
The IRS requires that the appraisal be completed no earlier than 60 days before the date of the gift and no later than the due date of the return (including extensions) on which the deduction or gift is first claimed.
Protecting Your Clients
Using automated valuation models (AVMs) like Zillow or relying on a real estate agent's Comparative Market Analysis (CMA) is not acceptable to the IRS for gift tax reporting. An IRS-compliant appraisal from a designated expert is required.
Madison & Park Appraisal regularly partners with CPAs and financial planners to provide IRS-compliant valuations for gifting strategies across Westchester County. Let us provide the defensible documentation your clients need.