Making a Gift of Art
The end of the year is often marked by charitable gifting, so to facilitate that process we have provided the following guide to assist in making a gift of a art. The most important thing to remember is for the gift to count in this tax year, it must be finalized with the institution prior to 31 December. The appraisal documents can come after the date of the gift, as long as it is prior to the filing of your taxes.
Step One – Express your interest. Contact the museum you are interested in donating to, they should have an office of planned giving, or something similar, to assist you in your making your gift.
Step Two – Learn the value of your art. When considering your gift of art, it’s important, of course, to know the value of your artwork. Museums and their staff are not permitted to prepare appraisals, therefore contact an appraiser knowledgeable in the artwork you are donating. You are only required to obtain a USPAP compliant appraisal if the value of the gift is great than $5,000. The appraisal must be dated no earlier than 60 days prior to the date of the gift, which is the date on which the museum formally accepts the gift. The appraisal may be dated after your gift is accepted, up to the due date (including extensions) of your income tax return.
Step Three – Consider the options.
An Outright – An outright gift of a work of art is a full transfer of ownership to the museum. It enables the donor to take a charitable deduction for tax purposes for the full fair market value of the work, as determined by a qualified appraiser. In general, the amount of the allowable deduction in any one taxable year for noncash gifts is limited to 30% of the donors adjusted gross income for the year the gift is made, but the unused portion may be carried forward (see Step Five below).
Fractional Gift – The gift of a fractional interest in a work of art allows the donor to retain partial ownership of the work. However, the donor’s charitable deduction is limited to the value of the percentage interest in the work given to the museum. As joint owners of the work, the museum and the donor must enter into an agreement concerning the details of such ownership, including when each party will have possession of the work. Based on IRS regulations, the museum may accept factional gifts only if the owner pledges to contribute the remaining interest in the work within ten years of the initial gift.
Bequest – A bequest is another way that you may make a gift of art to the museum. Simply signing a will or a codicil (an amendment to a will) that contains a bequest to the museum does not entitle the donor to a charitable deduction for income tax purposes. However, once a gift of a work of art is made pursuant to a bequest, the work is excluded from the donor’s taxable estate, and therefore, is not subject to federal estate tax.
Promised Gift – A promised gift is made when a donor signs an irrevocable agreement pledging to make a gift of a work of art to the museum at a future time, which may be any time prior to or at the donor’s death. A promised gift allows the museum to count on receiving the work, while allowing the donor to continue to enjoy the use of the work of art. Similar to a bequest, there is no charitable deduction available simply for signing an agreement promising to make a future gift. However, current law allows a deduction for the year in which the gift is actually made.
Step Four – Formalize the Gift. Once you have determined that you want to make a gift and the museum express interest in accepting your gift, the museum’s registrar will prepare a deed of gift or promised gift pledge for your signature. Following formal acceptance, you will receive a written acknowledgment of your gift to the museum. In the case of a fractional gift, you will be asked to sign an irrevocable pledge that will commit the remaining fraction of the gift to the museum. A signed pledge is also required to formalize a promised gift to the museum.
Step Five – Claim a charitable deduction for income tax purposes. For gifts made during your lifetime, you may be eligible for a charitable deduction for federal income tax purposes. If the amount of your deduction for all noncash gifts if more than $500, you will need to file IRS Form 8283 with your income tax return. As noted above, if the value of your gift is more than $5,000, you will need to obtain an independent appraisal in order to utilize the deduction. The appraisal of the object must be made by a qualified appraiser. If the value of your gift of art is $20,000 or more, a copy of the appraisal itself must also be attached to your return.
As noted above, in general the amount of the deduction in any one year for gifts of art is limited to 30% of the donor’s adjust gross income. A donor who is not able to utilize the full amount of the charitable deduction in the year of the gift may be able to carry forward the unused portion for up to five additional years.
This document has been adapted from an informational letter provided by Philadelphia Museum of Art to prospective donors. Neither the Philadelphia Museum of Art or Penelope Dixon & Associates engage in rendering legal or tax advisory service. Individual circumstances differ and tax laws and regulations may change. Accordingly, it is recommended that before making any important decision regarding a gift of a work or art, you seek advise from your own tax adviser.