Lewes CPA
officeProgar & Company, P.A.
Certified Public Accounting services for businesses and individuals
Donating works of art to charity (MS Word)
Donating works of art to charity (.pdf)
Donating works of art to charity
Dear Reader:
You recently asked about what is involved in getting a deduction for
a donation to a charity of a work of art.
Your question is a good one because several different tax rules may
come into play in connection with such contributions. First of all,
a charitable contribution of a work of art is subject to reduction
if the charity's use of the work of art is unrelated to the purpose
or function that is the basis for its qualification as a tax-exempt
organization. The reduction equals the amount of capital gain you
would have realized had you sold the property instead of giving it
to charity.
Example (1).
You bought a painting five years ago for $10,000 and it's now worth
$20,000. You contribute it to a hospital. Your deduction is limited
to $10,000 because the hospital's use of the painting is unrelated
to its charitable function and you would have had a $10,000
long-term capital gain had you sold it.
Example (2).
Now assume you donate the painting to an art museum. Here, your
deduction is $20,000.
One or more substantiation rules may come into play when you donate
a work of art. First, if you claim a deduction of $250 or more, you
must get and keep an acknowledgement of the contribution from the
donee organization.
If you claim a deduction in excess of $500, you generally must
maintain written records that include information about the donee; a
description of the donated property; the fair market value at the
time of contribution, the method of determining it and a copy of the
signed appraisal, if any; a description of how and when you acquired
the property; and the cost or other basis of the property. You also
must complete section A of Form 8283 and attach it to your tax
return.
Where the claimed value of the property exceeds $5,000, you must
have a qualified appraisal of the property, i.e., an appraisal done
by a qualified appraisal not earlier than 60 days before the
contribution date and that meets numerous other requirements. You
include information about these donations on section B of Form 8283,
which you file with your tax return. If your total deduction for art
is $20,000 or more, you must attach a complete copy of the signed
appraisal. If an item of art is valued at $20,000 or more, IRS may
request that you provide a photograph. If an item of art has been
appraised at $50,000 or more, you can ask IRS to issue a “Statement
of Value” which can be used to substantiate the value.
In addition, your deduction may be limited to 20%, 30% or 50% of
your contribution base or an even lesser amount. This base, which
usually is your adjusted gross income, varies depending on the type
of organization involved and whether or not the deduction of the
work of art had to be reduced because of the unrelated use rule
explained above. The amount not deductible on account of a ceiling
may be deductible in a later year under carryover rules.
Donors sometimes make gifts of partial interests in an art work. For
example, a donor may contribute a 50% interest in a painting to a
museum, with the understanding that the museum will exhibit it for
six months of the year and the donor will keep possession of it for
the other six months.
Special requirements apply to these donations. The donee charity
must take complete ownership of the item within 10 years or at the
donor's death, whichever comes first. Failure to comply results in
the donor's recapture of all charitable deductions claimed, plus
interest and a 10% penalty. Also, the fair market value used in
determining the amount of each later contribution can't exceed the
property's value at the time of the initial contribution. These
rules don't apply to contributions that were made before Aug. 18,
2006.
If you would like to discuss of any these rules, please call.