Making a charitable contribution in the form of appreciated property is usually a good idea from a tax standpoint. You receive a tax deduction for fair market value and avoid capital gains tax that would be due if the property was sold. However, the IRS has become stricter about charitable contributions in general, and gifts of property, in particular. In order to take full advantage of the tax benefits you need to follow the rules.
The rules for gifting artwork are especially complicated. The donor begins by determining the status of the charity, because foreign tax-exempt organizations aren’t allowed. The artwork is then classified by type, because it can be valued both as property and by copyright. Finally, the donor should determine how the charity is going to use the artwork. For the donation to qualify for a full fair-market value deduction, the charity must use the asset in a way that is related to its exempt purpose. A museum that intends to display your artwork is a good example. If the charity is going to sell the art, the donor is limited to a deduction of their cost only.
The final requirement is to get a qualified appraisal that is dated not more than 60 days before the date of the gift. If the artwork is valued at more than $5,000, the completed appraisal summary must be included with the donor’s income tax return. For artwork valued at more than $20,000, the entire appraisal report is to be included with the tax return. There are strict requirements for information that must be included in the appraisal in order for it to be accepted by the IRS.
The rules are complicated, and failure to follow them could result in the IRS rejecting the deduction. A donor should seek a competent adviser to help structure gifts of artwork if they want to take full advantage of the tax benefits.