Many high-net-worth people personal artwork that they’re contemplating donating to a nonprofit with the expectation that the donation will qualify for a tax deduction. Advisors and their shoppers want to grasp the right steps for documenting and valuing donations to qualify for the tax deduction. A well-executed donation ensures that each the donor and the receiving establishment profit from the transaction whereas adhering to tax legal guidelines and necessities.
Selecting the Establishment
Earlier than making any donation, donors ought to perceive that the receiving establishment might not settle for their donation. Museums or different non-profit entities might decline donations for numerous causes. Establishments have particular assortment objectives and insurance policies that will stop them from accepting works that don’t align with their mission.
Even donors with longstanding relationships, corresponding to board members or vital benefactors, shouldn’t assume that their art work will probably be accepted with out a thorough analysis. Museums, for instance, sometimes contain numerous stakeholders (curators, conservators and management) within the decision-making course of, with the museum’s board of trustees in the end signing off on which work will probably be added to the gathering. Donors must be conscious that this course of can take vital time, so it’s vital that donors searching for to make a donation begin that course of as early within the 12 months as doable.
Institutional Mission
It’s additionally essential to contemplate the establishment’s mission when selecting the place to donate. The Inside Income Service’s rule on unrelated use states that the establishment should use the donation for its tax-exempt function or perform.
Deed of Reward
As soon as the establishment accepts the art work, an important doc is created referred to as the “deed of reward.” This authorized settlement particulars the phrases of the donation, together with the donor’s title and handle, an outline of the art work and warranties from the donor that: (1) they’ve good and full title to the work; (2) the art work is free and away from any encumbrances or liens; and (3) it’s been imported into the nation legally (if relevant).
Restrictions
One other key ingredient of the deed of reward is the inclusion of any restrictions positioned on the art work by the donor. Whereas restrictions could also be well-intended, they’ll influence the worth of the donation for tax functions. The IRS might cut back the tax deduction if the restrictions restrict the establishment’s means to totally use, show or promote the art work.
Deciding on the Proper Appraiser
Probably the most essential features of the artwork donation course of is deciding on the appropriate appraiser. The IRS requires that artwork donations be appraised by a certified appraiser who has an academic {and professional} background that’s related to the objects they’re appraising such that they’ll produce a reputable appraisal report and cling to particular moral {and professional} requirements. Selecting the fallacious appraiser may end up in the disqualification of the appraisal, which might jeopardize the donor’s tax deduction.
The Uniform Requirements of Skilled Appraisal Observe (USPAP), established in 1989, units forth the well known moral and efficiency requirements for all appraisal providers, together with effective artwork, antiques and collectibles. Compliance with USPAP is crucial for guaranteeing the validity of the appraisal and subsequent tax advantages.
Certified Appraisal
A professional appraisal for donation will look considerably completely different from insurance coverage value determinations that donors could also be used to. Whereas insurance coverage value determinations could also be as brief as one web page and supply no help of the valuation, a certified donation appraisal is an in depth report that may simply be 25 pages for a single donated object. Info required consists of proof to help the truthful market worth (FMV), details about the appraiser, and the phrases of the donation.
An excellent certified appraisal may even have skilled high quality photograph documentation of the donated property printed in shade, with every {photograph} taking on a whole web page on photo-quality paper or submitted digitally as high-resolution pictures.
IRS Kind 8283
When claiming a tax deduction for a donation of artwork or different non-cash property, the donor should full and submit IRS Kind 8283 together with their tax return.
If donating to a couple of establishment, a separate Kind 8283 should be stuffed out for every donation.
The IRS additionally stipulates particular guidelines concerning the sale of the donated art work by the establishment.
Keep away from Valuation Disputes
For donations with an anticipated worth of $50,000 or extra, a donor or potential donor can request a particular Assertion of Worth from the Artwork Appraisal Providers (AAS) workforce on the IRS, however they need to achieve this earlier than submitting their tax return. The Assertion of Worth can safeguard in opposition to potential IRS challenges to the appraised worth.
*This text is an abbreviated abstract of “Artwork Donations: A Guidelines for Donors and Advisors,” which seems within the April 2025 problem of Trusts & Estates.
