Deductions Available to Collectors at Charity Auctions

By Alan L. Olsen
Managing Partner
Greenstein, Rogoff. Olsen and Co., LLP
Posted: 7/25/11

Collectors who want to make donations may consider donating artwork and collectibles to charity auctions. If this is something you are thinking about and would like to take full tax benefits, the following tips may help.

Making Donations to Charitable Organization Auctions:

1. Make sure you are donating to a qualified charity.

The Internal Revenue Service (IRS) maintains a list of charities where donations can qualify for tax deductions. Most churches and government organizations are qualified, but all other charities have to apply to the IRS to be qualified as charitable organizations. To confirm you are donating to a qualified charity, either ask the charity directly or find out if they appear in IRS Publication 78, which contains a list of “most qualified charitable organizations.”

2. Have your collectibles appraised?

With respect to donation of valuable collectibles (e.g., over $5,000), getting an appraisal from a qualified appraiser is an important step in the donation process, even though you may or may not be required to attach the appraisal to your tax return (appraisal fees exceeding 2 percent of your Adjusted Gross Income or AGI are tax-deductible). The appraisal must be made no earlier than 60 days before the date you contribute the property. Additionally, you must receive the appraisal before the due date (including extensions) of the return on which you first claim a deduction for the property.

If your noncash contribution is over $500, you must attach Form 8283 to your tax return. If your artwork or collectible is worth more than $5,000, you are not required to attach the appraisal to your tax return (just keep the record yourself). If you deduct $500,000 or more for an item or group of similar items, you will need to attach the qualified appraisal to your tax return. Special filing requirements for art donations include attaching a copy of the signed appraisal to Form 8283 if your total deduction for art is $20,000 or more. In addition, a photograph may be required for individual objects valued at $20,000 or more.

3. Check to see if you will receive tax benefits from your donation.

Your charitable deduction is limited to 30 percent of your AGI if the collectibles are capital gain property and donated to a publicly supported charity. If the donation is to a private foundation, the limit is 20 percent of AGI. The unused charitable deduction can be carried forward to future years. However, you must use it within five years; otherwise, you will lose the ability to claim the deduction.

The law limits a donor’s charitable deduction to the donor’s tax basis in the contributed property and does not permit the donor to claim a fair market value charitable deduction for the contribution if the charity puts the donated property to an unrelated use.

Moreover, special certification rules apply to the donation of capital gain property over $5,000:

If the charity sells/disposes the property during the year you donated, your deduction is limited to your cost basis unless the organization provides a written statement (e.g., Form 8282) that either certifies its use of the property was substantial and related to the organization’s purpose or certifies its intended use of the property became impossible. A copy of Form 8282 should be provided to you.

You must recapture part of your original deduction in the year of sale and report as ordinary income the excess of the deduction claimed over your basis at the time of contribution if the following conditions are met:

Your charitable deduction is more than your basis in the property,
The charity sells/disposes the property after the year of contribution but within three years of contribution, and
The charity does not provide the IRS and you with the required certification.

If you are donating works of art or other collectibles to a charitable auction, make sure to consult with a tax professional so you can receive tax benefits for your donations.

For more information on auctions see Auction News Network.

Sources:
[1] Publication 529 Miscellaneous Deductions. IRS. 27 June 2011. Web. 2010. http://www.irs.gov/pub/irs-pdf/p529.pdf.
[2] Section B: Appraisal Requirements. Instructions for Form 8283. IRS. 28 June 2011. Web. http://www.irs.gov/pub/irs-pdf/i8283.pdf.
[3] Publication 561. Deductions of more than $5,000. http://www.irs.gov/publications/p561/ar02.html#d0e1545.
[4] Section B: Art valued at $20,000 or more. Instructions for Form 8283. IRS. 28 June 2011. Web. http://www.irs.gov/pub/irs-pdf/i8283.pdf.
[5] Section B: Deduction of more then $500,000. Instructions for Form 8283. IRS. 07 July 2011. Web. http://www.irs.gov/pub/irs-pdf/i8283.pdf.
[6] Form 8282. Irs.gov. IRS. Web. 28 June 2011.
http://www.irs.gov/pub/irs-pdf/f8282.pdf.