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Charitable giving is a key part of estate planning for many people. If you\u2019re among them and own valuable works of art, they may be ideal candidates for charitable donations during your life.<\/p>\n
Generally, it\u2019s advantageous to donate appreciated property because, in addition to gaining a valuable tax deduction, you can avoid capital gains taxes. Because the top capital gains rate for art and other \u201ccollectibles\u201d is 28%, donating art can be particularly effective.<\/p>\n
5 tax-saving tips<\/strong> 1. Obtain an appraisal<\/em>. Most art donations require a \u201cqualified appraisal\u201d by a \u201cqualified appraiser.\u201d 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\u2019s findings are the IRS\u2019s official position on the art\u2019s value, so it\u2019s critical to provide a solid appraisal to support your valuation.<\/p>\n 2. Donate to a public charity<\/em>. To maximize your charitable deduction, donate artwork to a public charity, such as a museum or university with public charity status. These donations generally entitle you to deduct the artwork\u2019s full fair market value (provided the related-use rule is also satisfied). If you donate art to a private foundation, your deduction will be limited to your cost.<\/p>\n 3. Understand the related-use rule.<\/em>\u00a0For you to qualify for a full fair-market-value deduction, the charity\u2019s use of the donated artwork must be related to its tax-exempt purpose. So, for example, if you donate a painting to a museum for display or to a university for use in art history research, you\u2019ll satisfy the related-use rule. But if you donate it to, say, an animal shelter to auction off at its fundraising event, you won\u2019t satisfy the rule.<\/p>\n 4. Transfer the copyright.<\/em>\u00a0If you own both the work of art and the copyright to the work, you must assign the copyright to the charity to qualify for a charitable deduction.<\/p>\n 5. Consider a fractional donation.<\/em>\u00a0If you\u2019re not ready to give up your artwork but are willing to part with it temporarily, consider donating a fractional interest. This allows you to generate tax savings while continuing to enjoy your art for part of the year. For example, if you donate a 25% interest in your art collection to a museum, the museum receives the right to display the collection for three months of each year. You deduct 25% of the collection\u2019s fair market value immediately and continue to display the art in your home for nine months of each year.<\/p>\n
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\nIf you\u2019re considering a donation of art, here are five tips that can help you maximize your tax savings:<\/p>\n