In the context of donor's tax, what does the term 'appraisal' refer to?

The term 'appraisal' in the context of donor's tax specifically refers to an estimate of an asset's market value. This is important because the value established through an appraisal is used to determine the amount that will be subject to taxation when assets are gifted. Accurate appraisals ensure that the fair market value of the asset is reflected for tax purposes, helping both donors and tax authorities ascertain proper tax obligations related to gifts.

When an asset is donated, the IRS relies on the appraised value to assess any potential donor's tax liability. A professional or qualified appraiser typically conducts this process, focusing on various factors such as the condition of the asset, current market conditions, and comparable sales to establish a reliable value. Therefore, understanding appraisals' role is crucial for compliance with donor's tax regulations and for strategic financial planning concerning gifting assets.