Thursday, December 20, 2007

Donate Art, Save Taxes

 

Donate Art to Charity and Potentially Deduct More Than Your Cost Basis

Rules for the Charitable Donation of Art

Did you know that there is a tax deduction available for donations of art?

The IRS rules require that you have owned the artwork for a minimum of 12 months and that the artwork is donated to an IRS-approved charity. The amount you can deduct on your tax return for a charitable donation of art is the appraised fair market value (FMV) of the artwork.

If the FMV is less than $5,000, then you aren't required to file an appraisal completed by a "qualified appraiser" in support of your deduction. However, if you are claiming a fair market value above $5,000, you will be required to file an appraisal in support of the deduction.

The actual cost you paid for the artwork is irrelevant to the amount you can deduct, so if you are able to obtain the artwork a minimum of 12 months before the donation at a discount to the FMV at the time of the donation, then you gain an advantage by being able to deduct
more than you actually paid for the artwork.

IRS Publication 561 provides information on determining the fair market value of art donated to qualifying charities, and the relevant section of the publication is published below.

Please discuss any tax decisions with your tax advisor. ArikiArt has endeavored to be accurate in summarizing the existing tax deduction for art donations, but since the tax code is open to interpretation and changes often, we ask that you check with a tax professional.

IRS Publican 561 - Determining the Value of Donated Property

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 reputable source, unless the deduction is for $5,000 or less. Examples of information that should be included in appraisals of art objects - paintings in
particular—are found later under Qualified Appraisal. (See IRS Publication 561 for details),

Art valued at $20,000 or more

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. 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 5 inches, must be provided upon request.

Art valued at $50,000 or more

If you donate an item of art that has been appraised at $50,000 or more, you can request a Statement of Value for the item from the IRS. Your request must include the following:

  • A copy of a qualified appraisal of the item. See Qualified Appraisal, later
  • 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. Add $250 for each item in excess of three.
  • A completed Form 8283, Section B
  • The location of the IRS territory that has examination responsibility for your return.

If your request lacks essential information, you will be notified and given 30 days to provide the missing information.

Requests should me mailed to:

Internal Revenue Service
Attention: Art Appraisal Services (AP:ART)
P.O. Box 27720
McPherson Station
Washington, DC 20038

Refunds

You can withdraw your request for a Statement of Value at any time before it is issued. However, the IRS will not refund the user fee if you do.

If the IRS declines to issue a Statement of Value in the interest of efficient tax administration, the IRS will refund the user fee.

Authenticity

The authenticity of the donated art must be determined by the appraiser.

Physical condition

Important items in the valuation of antiques and art are physical condition and extent of restoration. These have a significant effect on the value and must be fully reported in an appraisal. An antique in damaged condition, or lacking the “original brasses,” may be worth much less than a similar piece in excellent condition.

Art appraisers

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. Certain art dealers or appraisers specialize, for example, in old masters, modern art, bronze sculpture, etc. 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. They can report more recent comparable sales to support their opinion.

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. It lists museums both by state and by category.

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. The Yellow Pages often list specialized art and antique dealers, auctioneers, and art appraisers. You may be able to find a qualified appraiser on the Internet. You may also contact associations of dealers for
guidance.

(Please note: Please seek professional tax advice for any changes to tax law since this article was researched.)