Valuable works of art may be ideal candidates for lifetime charitable donations. Generally, it’s advantageous to donate appreciated property because, in addition to reducing your taxable estate and garnering an income tax deduction, you avoid capital gains taxes on the appreciation. Because the top capital gains rate for art and other “collectibles” is 28%, donating art is particularly effective.
However, there are two critical considerations to make before you turn over that masterpiece:
- Have the art work appraised. Most art donations require a “qualified appraisal” by a “qualified appraiser,” and IRS rules contain detailed requirements about the qualifications an appraiser must possess and the contents of an appraisal.
Any art valued at $20,000 or more will be referred to the IRS Art Advisory Panel to determine the IRS’s official position on the art’s value. That makes it even more important to provide a solid appraisal by a qualified appraisal.
- Be aware of the “related-use” rule. This rule states that in order to qualify for a full fair market value deduction, the charity’s use of the art work must be related to its tax-exempt purpose, such as an art museum displaying your donated piece.
It is not as simple as you might think to donate a piece of art. The rules are complex and you don’t want to make a mistake that will jeopardize the value of your charitable donation.
Considering making an art donation? I can be reached at firstname.lastname@example.org.
Marco Svagna, a tax partner at Berdon LLP, advises high net worth individuals and family/owner-managed business clients on estate and income tax issues, succession and financial planning, and other matters relating to the preservation of wealth.