The amount of the deduction for the charitable donation of the artwork is the appraised fair market value, or FMV, of the artwork, but only when the use of the art object by the public charity is related to the purpose of the organization’s charitable exemption. This means that the donated artwork must be of a type normally retained and exhibited by the charitable organization, such as a museum or educational institution that normally has a collection of similar artwork.
Maximizing Deductions: Long-Term Capital Gain Property
To maximize the benefit of contributing artwork that has appreciated in value, the artwork must be owned for a minimum of 12 months prior to the date of contribution. If owned 12 months or more, the charitable deduction that may be claimed for the artwork contribution is the FMV. However, if the artwork is held for less than 12 months prior to the contribution, the property does not qualify as long-term capital gain property and the deduction is limited to actual cost or FMV, less appreciation.
The artwork must be donated to a charity approved by the Internal Revenue Service. Qualified public charitable organizations include nonprofit groups that are religious, charitable, educational, scientific or literary in purpose or that work to prevent cruelty to children or animals, according to IRS Publication 78, which lists qualified organizations.
Non-Cash Charitable Contributions Form
IRS Form 8283, Non-cash Charitable Contributions must be attached to tax returns claiming non-cash charitable contributions of $500 and more. Section A of Form 8283 is to be completed for artwork donations of $5,000 and less, whereas Section B is for donations of artwork of more than $5,000.
If the artwork contribution is more than $5,000, there must be an appraisal completed by a "qualified appraiser" in support of the deduction filed with the tax return. The authenticity of the donated artwork must be determined by the appraiser.
$20,000 and Up
If the artwork contribution is $20,000 or more, attach a complete copy of the signed appraisal to your tax return. For individual objects valued at $20,000 or more, a photograph of a size and quality that fully shows the object, preferably an 8-by-10-inch color photograph or a color transparency no smaller than 5 inches, must be provided upon request.
$50,000 and Up
If the artwork contribution is $50,000 or more, you can request a Statement of Value for the item from the IRS. The request should include a copy of a qualified appraisal of the item; a check or money order for $2,500 payable to the IRS for the user fee that applies to your Statement of Value request that covers up to three items of art -- add an additional $250 fee for each item in excess of three; a completed Form 8283, Section B; and the location of the IRS territory that has examination responsibility for your return. If a request for a Statement of Value is withdrawn before it is issued, the IRS will not refund the user fee. If the IRS declines to issue a Statement of Value, the IRS will refund the user fee. Requests for a Statement of Value are mailed to Art Appraisal Services at the IRS.
The cost of an appraisal of the artwork donated to a charity is not deductible as a charitable donation. However, appraisal fees of donated artwork may qualify as a miscellaneous deduction, subject to the 2 percent limit, on Schedule A of Form 1040, if the appraisal fees were paid to determine the amount allowable as a charitable contribution.
A qualified appraisal may not be completed earlier than 60 days prior to the date the artwork is contributed to a public charity and must be signed and dated by a qualified appraiser in accordance with generally accepted standards. Information in a qualified appraisal must include the name, address and taxpayer identification number of the appraiser; the qualifications of the appraiser including the appraiser’s background, experience, education and any membership in professional appraisal associations; a statement that the appraisal was prepared for income tax purposes; the method of valuation used to determine fair market value; and the specific basis for the valuation, such as any specific comparable sales transaction.