When fine art is donated to museums, everyone wins. Museums acquire new artwork, the donor receives a tax deduction, and the artist benefits from the prestigious institutional destination of the work (also a safe haven from the art markets). The US is privileged to have this system that has helped build the collections of many of the world's best museums. But, there is always the opportunity for abuse. As such, the IRS has a specific set of protocols one must follow to receive tax benefits for artworks valued more than $5,000.
Here are some of the guidelines regarding charitable donations of artwork:
- Qualified Appraisal and Qualified Appraiser
The IRS defines a Qualified Appraisal as a document that meets a strict set of standards as outlined in Regulations section 1.170A-17(A) and is issued by a Qualified Appraiser. Don’t worry — our appraisals meet all of these requirements, and then some. The appraisal must be issued no more than 60 days before the date of property transfer. This is automatically accounted for in our software to ensure you won’t accidentally have the artwork appraised too soon.
The Qualified Appraisal must be compliant to the Uniform Standards of Professional Appraisal Practice (USPAP) and the Appraiser must meet requirements including designation from a recognized professional appraisal association relevant to the subject property, such as the Appraiser’s Association of America (AAA). Our team of appraisers is always up-to-date on the latest training from the field and maintain some of the highest credentials from AAA.
We are proud of our radical neutrality, which means that Appraisal Bureau never participates in sales of art or market activity of any kind — going beyond the minimum requirements of USPAP and the IRS to ensure third-party, unconflicted and accurate valuations.
- Form 8283
The Form 8283, which accompanies the appraisal, must be signed by both Appraisal Bureau and the donee institution. The donee must also confirm that the artwork qualifies as “related use property” consistent with the mission of the institution. A tiny but important detail is that a separate 8283 must be filed for each medium of artwork donated. If a collection of sculptures, paintings and photographs are donated to a museum, the appraisal would require three 8283s. Another noteworthy requirement is that the donor must have owned the donated property for more than one year prior to donation in order to receive a deduction with an appreciated value over the original acquisition cost. If donated within one year, the appraised value is limited to the lesser of Fair Market Value or cost.
If the donee sells or otherwise disposes of the property within three years after the date of transfer, the donee must file a Form 8282 notifying the IRS. In this case, if more than $5,000 is profited on the sale, an IRS audit may be triggered and the donor may lose the original tax deduction. The use rule will also come back into play as the IRS will examine what the property was used for, and why it was sold.
Appraisal Bureau handles all of these minute complexities and ensures that you have everything you need for tax filing season.
For help finding the right institution for your artwork donation, reach out to our partner Museum Exchange!