I recently had the opportunity to attend a lecture on Art & Legacy Planning at the Phoenix Art Museum and heard a talk by Susan L. Brundage, Director of Appraisal Services at Art Dealers Association of America. She shared a lot of great information on maintaining documentation for artwork, getting artwork appraised, and the tax implications of donating artwork. Her lecture was a great reminder of how important maintaining good documentation is for supporting the valuation of artwork for charitable donation.
Records to Maintain
Clients often purchase works of art and fail to maintain records on where the art was purchased and how much was paid. Years later, that information will be required to complete Form 8283 if the artwork is donated. Each piece of art in your collection should include the following:
- Receipt or invoice from the purchaser which includes the date you made the purchase, the name of the person or entity you bought it from as well as their address, phone number, and how much you paid for the piece. The receipt should also include the name of the creator of the work, a physical description of the piece and the name, edition, and number of the piece.
- A certificate of authenticity, title and any other pertinent information known about the piece.
- The cancelled check or charge slip with which you paid for the item.
It is generally recommend that you keep these documents in one file and if possible, keep it in a safe deposit box or fire proof safe. If paperless record keeping is more your style, Collectify allows you to scan in digital records of artwork, track details, scan in articles you come across on the artist, and include photos linked to your digital record.
If you are donating a piece of art to a museum, the museum’s own appraisers cannot provide an appraisal for the purposes of valuing your donation. You may be able to get a recommendation for a qualified appraiser from an attorney or wealth adviser, but you should always check the appraiser’s qualifications and be sure they are knowledgeable about the type of piece you are having appraised. Reputable appraisers are affiliated with at least one of the three major appraisal organizations: the Appraisers Association of America, the American Society of Appraisers, or the International Society of Appraisers.
Contributions of art and other personal property are reported on IRS Form 8283. For donations over $5,000, Section B of Form 8283 must be completed. This section is signed by the donor, the donee, and the appraiser. A qualified written appraisal must be on hand for the donation. The appraisal must include the appraiser’s qualifications including background, experience, education, and membership in professional appraisal associations. As the market for artwork can fluctuate greatly in a small period of time, the appraisal must have been prepared no earlier than 60 days before the date of the contribution of the appraisal property. For donations of artwork over $5,000, but under $20,000, the appraisal does not need to be attached to Form 8283. For donations over $20,000, the taxpayer must attach a copy of the signed qualified appraisal to Form 8283.
The IRS has an Art Advisor Panel, a group of 25 volunteer experts who meets periodically to review appraisals and decide if an appraisal is too high (or in the case of an estate tax valuation, too low). In 2014, the panel reviewed 315 items valued by taxpayers at a total of almost $251 million and recommended an adjustment to 62% of appraisals it reviewed, according to their annual report.
If you are considering donating an object of art that has been appraised at $50,000 or more, you may wish to request a Statement of Value for that object from the IRS. The IRS user fee, which must be submitted with the request, is currently $5,400 for one to three items and $270 for each additional item. The fees are high, but when dealing with such a high-value donation, the peace of mind provided by the avoidance of penalties may be worth it.
There are many more considerations to take into account for gifting artwork and including it in your estate plan, but maintaining good documentation and securing a qualified appraisal is a good first step. More information can be found about Charitable Contributions in IRS Publication 561 and about Determining the Value of Donated Property in Publication 561.
By Janet Berry-Johnson, CPA