Abstract: From a tax perspective,
appreciated artwork can make one of the best charitable gifts. It’s doubly
beneficial because a taxpayer can both enjoy a tax deduction and avoid capital
gains taxes one would owe from selling the property. This article explains the
applicable requirements and provides tips on maximizing the deduction.
Double up on tax benefits by
donating appreciated artwork
From a tax perspective, appreciated artwork can make one of
the best charitable gifts. Generally, donating appreciated property is doubly
beneficial because you can both enjoy a valuable tax deduction and avoid the
capital gains taxes you’d owe if you sold the property.
The extra benefit from donating artwork comes from the fact that the top long-term capital gains rate
for art and other “collectibles” is 28%, as opposed to 20% for most other
appreciated property.
Requirements
The first thing to keep in mind if you’re considering a
donation of artwork is that you must itemize deductions to deduct charitable
contributions. Now that the Tax Cuts and Jobs Act has nearly doubled the
standard deduction and put tighter limits on many itemized deductions (but not
the charitable deduction), many taxpayers who have itemized in the past will no
longer benefit from itemizing.
For 2019, the standard deduction is $12,200 for singles,
$18,350 for heads of households and $24,400 for married couples filing jointly.
Your total itemized deductions must exceed the applicable standard deduction
for you to enjoy a tax benefit from donating artwork.
Something else to be aware of is that most artwork donations require a “qualified appraisal” by a “qualified appraiser.” IRS rules contain detailed requirements about the qualifications an appraiser must possess and the contents of an appraisal.
IRS auditors are required to refer all gifts of art valued at $50,000 or more to the IRS Art Advisory Panel. The panel’s findings are the IRS’s official position on the art’s value, so it’s critical to provide a solid appraisal to support your valuation.
Finally, note that, if you own both the work of art and the copyright to the work, you must assign the copyright to the charity to qualify for a charitable deduction.
Deduction
tips
The charity you choose and how the charity will use the artwork can have a significant impact on your tax deduction. Donations of artwork to a public charity, such as a museum or university with public charity status, can entitle you to deduct the artwork’s full fair market value. If you donate art to a private foundation, however, your deduction will be limited to your cost.
For your donation to a public charity to qualify for a full fair-market-value deduction, the charity’s use of the donated artwork must be related to its tax-exempt purpose. If, for example, you donate a painting to a museum for display or to a university’s art history department for use in its research, you’ll satisfy the related-use rule. But if you donate it to, say, a children’s hospital to auction off at its annual fundraising gala, you won’t satisfy the rule.
Careful planning
To reap
the maximum tax benefit of donating appreciated artwork, you must plan your
gift carefully and follow all applicable rules. Contact us for assistance.
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