If you’re charitably inclined and you collect art, donating artwork can be a good move from a tax perspective. In general, you get a double benefit from donating appreciated property. You can both enjoy a valuable tax deduction and avoid the capital gains taxes you’d owe if you sold the property. The extra benefit from donating artwork comes from the higher long-term capital gains rate. For art and other “collectibles” it is 28%, as opposed to 20% for most other appreciated property.
Requirements for Donating Artwork
The first thing to keep in mind if you’re considering donating artwork is that you must itemize deductions to deduct charitable contributions. The Tax Cuts and Jobs Act has nearly doubled the standard deduction and put tighter limits on many itemized deductions. (This doesn’t include the charitable deduction.) That means many taxpayers who 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. To enjoy a tax benefit from donating artwork, your total itemized deductions must exceed the applicable standard deduction.
Something else to be aware of: 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 must refer all gifts of art valued at $20,000 or more to the IRS Art Advisory Panel. The panel’s findings establish the IRS’s official position on the art’s value. That means it’s critical to provide a solid appraisal to support your valuation.
There is something else to keep in mind if you own both the work of art and its copyright. 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 may significantly impact your tax deduction. Donating artwork to a public charity may entitle you to deduct the artwork’s full fair market value. A museum or university with public charity status meets this qualification. If you donate art to a private foundation, however, your deduction will be limited to your cost.
A charity’s use of the donated artwork must relate to its tax-exempt purpose. This allows you to qualify for a full fair-market-value deduction. If 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. But if you donate it to, say, a children’s hospital to auction off at its annual fundraising gala, you won’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, too, you must plan your gift carefully and follow all of the applicable rules. Contact us to learn more.