The Fine Art of Donations for Tax Write Offs

Your CPA (Certified Public Accountant) or tax attorney may have recommended that you donate a work of art in 2009 to a charitable organization for a tax deduction. This is an excellent win/win idea especially during a time when the market for art sales is slow and sellers aren’t realizing hoped-for results. If you have an artwork in your collection that you would like to part with, donations are a viable way of realizing benefits in a financial sense this year.
If you are considering a fine art donation this year, the following 10 points might help you through the process of the donation. In addition, always work closely with your accountant or tax advisor.

1. You must have owned an artwork for at least one year and one day in order for it to qualify for a charitable donation at fair market value. Be sure if you are purchasing a work to donate, that you keep all receipts, any information about the sale including where it was purchased and dates, information about the artist, descriptions of the piece including edition numbers, certificate of authenticity, and cancelled check or charge slip. If you have owned a piece for years, gather as much documentation as you have to prepare for the donation.

2. When it comes to taxes, the IRS only accepts the Fair Market Value of an artwork as a basis from which to begin your calculations. Fair market value is the price the artwork would sell for on the open market between a willing buyer and a willing seller, with neither being required to act, and both having a reasonable knowledge of the work offered. A qualified fine art appraiser can help you to determine a fair market value of an artwork.

3. You must be able to support any donations with written documentation. If your donated art work’s fair market value is below $500, the IRS requires that a bill or sales receipt be included with your tax return.

4. If your artwork is valued at fair market value between $500 and $5,000, you are required to list the details of your gift along with receipts and documentation on the IRS form 8283. Artwork exceeding $5,000 up to $20,000 requires the 8283 form to be completed with information provided by a qualified appraiser that includes value, condition and the extent of any restoration that has been completed to date. In cases where the fair market value exceeds $20,000, the actual appraisal created by a certified appraiser needs to be included with the tax return as well as an original color 8 x 10 photograph of the work.

5. It is important to think about the organization which will receive your donation. The organization must have a “related use” for the artwork. For instance, an outdoor sculpture could be donated to a public outdoor space such a city downtown area or public grounds of a hospital, and a painting could be donated to a museum with a related collection. A qualified charitable donation can provide the best tax advantages. The collector is well advised to obtain a written confirmation of the charity’s “related use” plans for any proposed contributions.

6. A donor must use a qualified appraiser for the type of artwork they are donating. Be aware that not all appraisers are experts in art and those who are, are not experts in all genres and media. The IRS gives more weight to an appraisal from an expert in the area of which you are donating as well as their appraising track record. Make sure you review an appraiser’s resume carefully looking for degrees, certifications, professional appraisal organization affiliations and history of employment and association with galleries, artists and museums.

In no case may the appraiser be the one who sold you the artwork nor can the appraising fees be based on a percentage of the value of the artwork donated.

7. An appraisal must be obtained no earlier than 60 days prior to the date of the donation and no later the deadline for filing the taxpayer’s income tax return, including extensions.

8. Appraisal fees incurred in the process of determining the fair market value of the donated property are not deductible as part of your contribution; however, they may be deductible as a miscellaneous deduction among your other itemized deductions.

9. Your contributions are fully deductible if the total amounts of contributions for the year are 20% or less of your adjusted gross income.

10. If your contributions are more than 20% of your adjusted gross income, the amount of your deduction depends on the type of property donated and the type of organization receiving it. You can deduct up to 30% of your adjusted gross income for items donated in entirety to 501C3 organizations.

Remember that all donations with the intention of receiving a tax deduction in 2009 need to completed before December 31, 2009. Now is the time to think about what you would like to donate, to whom you would like to donate it, and finding a qualified appraiser to help you with the appraising portions of the donation. Non-profit organizations (501C3s) are happy to receive donations useful to their stated purposes and are usually helpful to the donor in addition to the appraiser, tax attorney and/or CPA.
Tax laws are very complicated, before beginning the donation process be sure to work closely with your tax advisor.

Submitted By,
Christine Guernsey, ISA AM
Guernsey and Associates, Fine Art Appraisals