The tax deduction ins and outs of donating artwork to charity
If you’re charitably inclined and you collect art, appreciated artwork can make a great charitable gift from a tax perspective. In general, donating appreciated property is doubly beneficial. This is because you can both enjoy a valuable tax deduction and avoid capital gains taxes had 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%. This is opposed to 20% for most other appreciated property.
There are a few things to keep in mind if you’re considering a donation of artwork. First, 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 2018, the standard deduction is $12,000 for singles, $18,000 for heads of households and $24,000 for married couples filing jointly. Your total itemized deductions must exceed the applicable standard deduction 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 above $20,000 to the IRS Art Advisory Panel. The panel’s findings are the IRS’s official position on the art’s value. This is why 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.
Maximizing your deduction
The charity you choose and how the charity will use the artwork can have a significant impact on your tax deduction. Donations of artwork can be to a public charity, such as a museum or university with public charity status. A donation to a public charity entitles 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.
Your donation to a public charity has to qualify for a full fair-market-value deduction depends on how the . To qualify 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. This is different if you donate it to a children’s hospital to auction off at its annual fundraising gala. The donation would not be inline with the tax-exempt purpose, and thus wouldn’t satisfy the rule.
Donating artwork is a great way to share enjoyment of the work with others. But to reap the maximum tax benefit, you must take the proper precautions.To do so, you must plan your gift carefully and follow all of the applicable rules. Contact us to learn more.
More from the IRS
Even if you don’t donate art, but donate other property, these rules can still apply to you. You can read more on charitable property donation on the IRS’s website at: https://www.irs.gov/charities-non-profits/contributors/information-on-donated-property-for-donors.
More from GLR
Many donors also volunteer for the charity or cause they support. If you volunteer you can learn more about potential deductions you can claim while volunteering. You can find that information at: http://glrcpa.com/what-you-can-deduct-when-volunteering/.