Donating Appreciated Property
Donating Appreciated Property
If you have possessions that are ready for a new home, or past their use by date, tthere are lots of options. These include consignment shops, thrift shops, charities such as Habitat for Humanity, and n many communities a customer-oriented trash collector who will remove large items placed next to your garbage can. That’s fine for most things, but what about those rare items such as paintings or antiques that have actually appreciated in value?
If you follow what seem to be very generous IRS rules, you may be able to get a tax deduction for the full appraised value of those items, even if you paid less than that when you acquired them. There is a wide range of property that could possibly qualify:
- Real Estate
- C-Corp and S-Corp Stock, Limited Partnerships or LLCs
- Restricted Stock
- Tangible Personal Property – Art/Collectibles
- Patents
- Sports Teams
Although the IRS rules (Form 8283) provide several ways you could determine fair market value (FMV), experts I’ve spoken to argue that the stakes are too high to rely on books or internet searches. They recommend hiring a qualified licensed appraiser. The appraisal can occur up to 60 days before the donation, at the earliest, up to the time you file your tax return, including extensions. The appraisal does not have to precede the donation, although it might be a lot easier that way.
Donations to a public charity could thereby qualify for a tax donation, and would not subject the taxpayer to capital gains tax on the increase in value. For example, you might have a painting you bought for $500 before the artist became famous. Now her work hangs in museums around the world, and your painting is appraised at $10,000. Donate it to a public charity or a museum, harvest that $10,000 deduction, and avoid capital gains taxes.
You don’t have to make the donation yourself. Your estate can donate the asset after you have passed, and receive the tax deduction.
If you have several assets that could provide these deductions, and you could use the benefit on current taxes, but haven’t firmed up the list of lucky recipients, you can set up a Donor Advised Fund, though an organization such as the Community Foundation of Tampa Bay or The Community Foundation of Sarasota County.
Things get a little more complicated if you donate to an organization other than a public charity. To get the full benefit, the subsequent use has to be consistent with the property’s purpose. Thus a painting sent to an art museum would fit this criterion, but a painting hanging in a car dealership probably would not. If this situation describes your property, get help. Experts such as Charitable Solutions, LLC, specialize in these matters.
While the IRS rules do appear generous, they are complicated. Charitable Solutions estimates that 80% of non-cash gifts are rejected for FMV tax deductions. It would be really awkward to try retrieving your gift and donating it somewhere else, after the IRS turns you down.
Of course, any deduction has to be considered in the context of your own tax situation. Can you use the deduction this year, or ever? How does it fit with other earnings, expenses, and deductions you are already listing or claiming?
Finally, remember that the purpose of this article is to get your creative juices flowing and point you toward further investigation. It is not intended, nor should it be relied upon, as tax advice. Consult your own tax advisor.
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This article, written by Alan Gorlick, originally appreared in Well Being magazine. Reprinted with permission.