The most
important thing to remember when purchasing a
work of art in the light of taxation is
WRITTEN
RECORDS. These records should include a
receipt or invoice from the purchaser which
includes the date you made the purchase, the
name of the person or entity you bought it from
as well as their address, phone number and how
much you paid for the piece. Also these should
include the name of the creator of the work, a
physical description of the piece, the name,
edition and number of the piece, a certificate
of authenticity and title, and any other
pertinent information that is known about the
piece. You should also retain the canceled
check or charge slip with which you paid for
the item. It is generally recommended to keep
these documents in one file and if possible,
keep it in a safe deposit box or fire proof
safe.
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Keith
Haring
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Policies
on the taxation of
proceeds from art sales
and/or donations of art
can be quite complicated
for even a top accountant
or financial planner
unless they specialize
and are experts in tax
matters related to art.
This is designed as a
guideline only for your
tax consultant as it
related to the current
rules and regulations
established by the
Internal Revenue Service
for federal taxes.
Policies can differ from
state to state, so we
strongly suggest that you
contact your certified
public accountant (CPA)
or tax attorney with
questions on your
specific art dealings
sine you are eventually
going to have to deal
with the IRS in
connections with
it.
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Donating
Works of Art
For Tax purposes, the IRS
only
accepts the Fair Market Value of
an artwork as a basis from which to begin your
calculations - no matter what the circumstance
of the deduction or payment may be.
According to the IRS, Fair
Market Value is general the price the art would
sell for on the open market. It is the price
that would be agreed on between a willing buyer
and a willing seller, with neither being
required to act, and both having a reasonable
knowledge of the work being
offered.
You must be able to support
any deductions with written documentation. For
a piece valued at under $500.00, this may be as
simple as a bill of sale or receipt signed by
the person from who you purchased the
piece.
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If
the piece is valued at
between $500.00 to
$5,000.00, you'll be
required only to list the
details of your gift and
whatever documentation
you have on IRS from 8283
which is used when you
have made a non-cash
charitable contribution.
For contributions
exceeding $5,000.00 in
value, your documentation
must include not only
this form, but also more
complete information
about the donated
property and an appraisal
from a qualified source,
You will need statements
concerning the physical
condition of the artwork
and the extent of any
restoration having
already been done on the
piece. In most of these
cases, you have to
actually attach a copy of
this appraisal to your
return.
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Norman
Rockwell
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Be aware also that not all
appraisers are art experts and those who are,
are not experts in all genres and medias. The
IRS gives more weight to an appraisal from an
expert in the particular art form you are
asking to take the deduction for as well as
their appraising track record.
In no case, may the appraiser
be the one who sold you the art, or is a dealer
in that type of art. Also prohibited would be
fees paid to the appraiser, that were based on
a percentage of the value of the artwork
donated.
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RoyLichtenstein
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There are several things that
must be taken into
consideration when donating a
work of art to a charity or
museum. The first is to
remember the rules about Fair
Market Value. Then know that,
if your total contributions for
the year are 20 percent or less
of your adjusted gross income,
they are fully deductible
(provided they otherwise
qualify and are not subject to
the limit on total itemized
deductions).
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If your contributions amount
to more than 20 percent of your adjusted gross
income, the amount of your deduction depends on
the type of property given and the type of
organization given to. Basically, you can
deduct up to 30 percent of your adjusted gross
income for items donated in entirety to
religious organizations; tax-exempt educational
organizations; state or local governments;
charitable groups; and foundations
(particularly private ones) which distribute
100 percent of the donations they receive or
pool it into a common community fund (all of
these organizations are generally referred to
as section 501C3 organizations).
Donations to private
foundations (except those classified as private
operating foundations) are limited to 20
percent of adjusted gross income. Private
operating foundations could be single artist
museum, for example. There is another phrase
you need to understand in the complex maize of
requirements for charitable deductions, that is
"used in the exempt function." If the artwork
is not "used in the exempt function" of the
charity, your deduction is limited to the lower
of your cost or the fair market value at the
time of gift. In other words, you get no
deduction for any appreciation. This special
rule only applies to things like gifts of
tangible personal property such as art, not
gifts of stock or securities. "Used in the
exempt function" means that the artwork must be
actually used by the donee in its regular
activities and not simply sold with the
proceeds reinvested. So for example, the gift
of a bronze sculpture to the Phoenix Art Museum
or to the Memorial Hospital for display in
their reception are would qualify. If you are
donating to a charity other then a museum, the
work must also be appropriate for the
institution. In other words, you would not
qualify under the "used in the exempt function"
clause if you donated a nude photograph to a
preschool.
Works of art are also subject
to the general IRS requirement that any
charitable donation of $250.00 or more must be
substantiated. This is in addition to the form
8283. The collector must also obtain a separate
receipt from the charity in which the gift is
described, as well as any goods or serviced
provided in exchange; if none were received the
receipt must say so. This receipt
must
be in the collector's hands before
filling their income tax
return.
For the best tax advantage,
donate only to qualified charitable
institutions. The institution itself should be
able to give you a copy of their exemption
letter, or you can verify that they are
qualified by checking IRS publication 78, which
lists all of the qualified charities in the
country. Such a charity must be listed as such
and have in its articles of incorporation or
mission statement a reference station its
direct responsibility to the display of art. A
collector would be well advised to obtain
written confirmation of the charities "related
use" plans for the proposed
contribution.
The IRS feels that if you
give a piece to a charity with no intent of
ever displaying it, that charity does not
qualify under the "used in the exempt function"
clause. You are, of course, allowed to donate
whatever you life, wherever you like - the only
thing involved here is the amount of the
donation you are allowed to claim for tax
purposes. Therefore, if you give art to a non
displaying charity, you are limited to
deducting only the amount you
paid for the piece, not any appreciation (nor
even Fair Market Value, if that can be set at a
higher rate then your cost).
You must tell the appraiser
the name of the charity and the date of the
gift. For works of art valued at $20,000.00 and
over, an 8" x 10" color photo is
needed.
Also be sure to check with
your CPA or tax attorney to insure that you
have owned the artwork long enough for it to
qualify for any donation deduction. For the
most part, you must have owned the artwork for
at least a year and a day.
While appraisal fees required
to determine the fair market value of donated
property are not deductible as part of your
contribution, do be aware that they may be
deductible as a miscellaneous deduction among
your itemized deductions.
The appraisal must be
obtained no earlier then 60 days prior to the
date of the donation, and no later then the
deadline for filling the taxpayer's income tax
return, including extensions.
If you discover you have made
a mistake in your calculations after filing
your tax return, whether in your favor or the
IRS', you can always file an amended form to
correct the error. Except in the case of
obvious or assumable fraud, even if you do make
an error which means you claimed too much
deduction, the IRS will customarily require
only that you pay the difference. Penalties,
interest and such, usually only come into play
when the IRS suspects purposeful fraud and must
set about proving it.
We have completed hundreds of
appraisals for IRS donation purposes, call us
with any questions you may have. We look
forward to assisting you.
Regards,
Ed Okil,
NIA
Executive Director
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