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.
If you’re considering such a donation, it’s critical that you get an appraisal. 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.
IRS auditors are required to refer all gifts of art valued at $20,000 or more to the IRS Art Advisory Panel. The panel’s findings are the IRS’s official position on the art’s value, so it’s important to provide a solid appraisal to support your valuation.
Also, be aware of the related-use rule. To qualify for a full fair-market-value deduction, the charity’s use of the artwork must be related to its tax-exempt purpose, such as an art museum displaying your donated painting. An animal shelter auctioning off your donated painting in a fundraiser wouldn’t qualify.
The rules surrounding donations of art are complex. We can help you achieve your charitable goals while maximizing your tax benefits.