& Non-Cash Donations
What could be more exciting than seeing a painting you have treasured being displayed in a museum, with your name on a plaque as the donor? Isn’t it wonderful to have your love of art shared by the public, an affirmation of your generosity, wisdom, and the enduring power of your curatorial vision? Art donations, besides bringing happiness and social standing, also can provide financial benefits. You may receive a tax deduction for your Non-Cash Charitable art donations.
Besides fine and decorative art donations, many other items such as rare books, musical instruments, classic automobiles, top designer fashion, and other connoisseur type items may be donated to a non-profit facility where they will be well used or displayed. Other items such as clothing, office furniture, and everyday items can also be donated, but you may not need a written appraisal report for these items if their total is under the limit for which appraisals are required.
If you are planning to donate Fine Art, Important Library Books, or other Personal Property to a non-profit organization such as museum or library, there is important information to be aware of when making art donations.
Contact the Institution to whom you are donating property, to insure they want to keep or exhibit your donation. There may be tax consequences if the institution does not retain the property for a certain time period. Currently this time period is a minimum of three years. Besides the financial implications, there is great satisfaction in knowing your precious object is placed where it will be most appreciated. This is one of the most important criteria we consider when accepting a Non-Cash Charitable Donation assignment. No one owns a work of art forever. We are all custodians.
Fair Market Value is used for all art donations, and other non-cash charitable donations. Fair Market Value is based on supply and demand, and is most often the value in the auction market, or an equivalent market, on the effective date of the appraisal. The effective date is the date property officially changes hands, and is required to be included in your report.
Consider the Timing of the donation and the appraisal. The written appraisal report can not be dated by the appraiser more than sixty days prior to the donation date, but it can occur after the donation. Our recommendation is for the appraiser to inventory and photograph the property to be donated, well ahead of time whenever possible. The appraisal report itself can then be expeditiously completed within the time requirements. It is also recommended to have a Gift Letter documenting the date the property changed hands, and other details of the donation.
If the Property was Purchased Within One Year of the donation, you may be able to donate it at your cost. Consult your accountant. Sometimes it is beneficial to also have an appraisal to assure the original transaction was at arms length and by parties knowledgable of all the facts.
If the Property was Purchased More than One Year Ago or was inherited, and it nears or exceeds the value for which an appraisal is required (currently $5,000) contact a qualified appraiser. Be aware that the Fair Market Value of donated property may be either significantly lower or higher, than the original purchase price.
Type of Art
Many higher value art donations consist of fine or decorative art. What type of art is suitable for high value charitable donation?
Artists with well-known reputations and significant after market sales, can be actively sought by museums or other institutions. Also, iconic works by local artists not having national recognition may be good candidates. While the “well-known” artists usually have auction records and are sought after by collectors and institutions, local artists may have regional importance, and contribute to the cultural and artistic history of an area. Many collectors of local artists are local. Historical societies and smaller museums often are candidates for donation, especially when the work is superior. Whenever possible, art donations should be accompanied by letters of provenance and catalogue raisonné entries.
Valuing living artists who are still creating work requires a different approach. Many living artists do not have significant auction records. If the artist is well represented by important galleries and there is high demand for their work among collectors, the galleries themselves, or for re-purchase by the artist, the artist may be suitable for donation. However, many artists have large numbers of unsold works, or are no longer being seriously collected. Remember, Fair Market Value is based on supply and demand, and in these cases a high value probably shouldn’t be expected.
Plan your Donation
Consult your accountant before making art donations, to determine if your donation will require a written appraisal. Appraisers can not give accounting advice. Non-Cash Charitable Donations require the filing of IRS Form 8283. The form is signed by the taxpayer, and your qualified appraiser. The institution receiving the gift must sign a corresponding form.
A Basis Value must be supplied by the taxpayer. The “basis” is the value in the year you acquired the property, either by purchase or inheritance. Declaring the basis value may have financial or tax implications. Consult an accounting professional before starting an appraisal, and determine the basis value. The basis value must be filled in by the taxpayer before the appraiser signs Form 8283.
A Gift Letter should be obtained for substantial non-cash donations to a museum, library, or other non-profit institution. It details the donated property and the date of the gift. We recommend the institution receiving the donation state the gift will be retained in the permanent collection for at least five years, and how it will be exhibited, or otherwise used. The institution must be qualified to receive the gift.
Lower Value Donations of used clothing in good condition, small appliances, household furniture, etc. are important for charities. Save your receipt from the non-profit. Unless the donation appproaches the $5,000 limit a written appraisal is usually not required.
Art donations to charity for fund raising are valued at their selling price. If you donate a painting appraised at a Fair Market Value of $25,000 to a local charity and they sell it for $2,000 you can only claim a value of $2,000. Be sure your donation will be sold in an appropriate, properly advertised way. This is why higher value donations requiring written appraisal documents, are usually best made to an institution that will keep your donation.
Documentation: The Fair Market Value of art donations must be thoroughly documented in the Appraisal Report. The appraiser should show their work and summarize how values were arrived at. The appraisal must be credible and not simply state a value without substantiation. Appraisers must supply clearly focused and well lit professional quality photographs (printed or digital) that are 300 dpi as full page images for items over $20,000. We suggest supplying the images in the printed appraisal report along with the written material which includes descriptions, condition, provenance, comparables, and conclusions. This is even more important for donated items over $50,000 which are subject to automatic committee review.
Competence: The appraisal must be performed by a competent professional with expertise in valuation, who can make critical judgements of quality, condition, provenance, and an understanding of the artist’s different periods and methods as they affect value in the current market. Appraisers must be without financial interest in the result of appraisals. The appraiser should hold a current USPAP certificate. The Uniform Standards of Professional Appraisal Practice are a set of ethical and methodology standards for property valuation. Appraisals for art donations are required to meet USPAP standards.
Authentication: Appraisers do not usually authenticate works of art. Sometimes authentication by the author of the current catalog raisonne may be required, and this may incur costs. Appraisers consider signatures, surface, composition, provenance (ownership history), and physical examination to assure works are most probably authentic.
Cost: The cost of an appraisal should be charged at an hourly rate, and not the value of the appraised items. Pricing appraisal of items by their value is unethical and violates the USPAP standards. While higher value reports may take more documentation and time than lower value reports, the cost of the appraisal must be based on the appraiser’s hourly rate.
Appraisal Deductibility: Is the cost of the appraisal report for my charitable donation tax deductible? This again, is a good question for you accountant. It may be under certain circumstances, but only your accountant can advise if this is true for you.
What if I’m Not Sure if my donation will be over the $5000 limit (the amount currently requiring a written appraisal)? Consultation is an economical approach. The appraiser will evaluates the property to be donated, and can offer advice concerning whether a report is advisable.