Taxpayer asks: Last year I donated a painting that I created to our local church. I sold a similar painting through a gallery around the same time for $1000. Can I skip an appraisal and just use that the value for my charitable deduction on my tax return?
Taxgirl says: Around this time of year, I get a lot of these kinds of questions. And about now is where I expect I’ll lose my audience… But don’t shoot the messenger! I’m just relaying the answers, I didn’t write the legislation (if you want to complain, by the way, don’t blame IRS, blame your Congressional officials).
At any rate, your question reminds me of a bar exam question because there’s at least three issues (bet you had no idea).
One, if you’re donating non-cash property with a value over $500, you have to provide a written acknowledgment from the charitable organization stating the description of the property and whether the qualified organization gave you any goods or services as a result of your contribution. You also have to report to the IRS how you got the property (did you buy it, inherit it, etc?), the date that you got the property and the cost or basis of the property. And since it’s art, you should provide an appraisal – so don’t skip it!
Two, if you’re donating property that’s not related to the charity’s "exempt purpose" which may be the case here, your donation may be limited. What I mean by that is that a donation of a CAT scan machine to a hospital is a pretty sure bet that the hospital will use the machine to accomplish its charitable purpose (making folks better). But if you donate that same machine to a soup kitchen, not so much. So, the IRS limits the deduction that you can take for donating tangible property to a charitable organization when the property is not used for an exempt purpose.
And finally, your problems are bigger than issues one or two anyway because you said that you created the painting. In that case, special rules apply (and this is where things get ugly). Your deduction for that painting is limited to the cost of producing the painting excluding your services. In other words, you can’t use the FMV, you must use your materials cost. Even if your painting retailed for $1000, your deduction is limited to the cost of the canvas, paints and frame.
I speak a lot to artists and every time this comes up, artists feel singled out. Not that it likely helps to know, but you’re really not being singled out. The IRS views all services this way for purposes of a charitable deduction. Here’s an example: I just wrapped up a case last year that I did pro bono through the Senior Law Project. It went on for three years. I had well over $25,000 of my fees tied up in that case – and that meant time and fees not expended on other clients (lost income, right?). What was my deduction for that effort? The cost of postage and paper. Those were my hard costs. According to IRS, that’s my deduction. But I got the warm fuzzies in return, right?
The rules which relate to charitable donations of items other than cold hard cash can be complicated. If your situation is out of the ordinary and you’re not sure how to report your donation, check with your tax professional.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.