Motivations for donating artwork are as varied as the hues of a Monet. For some, donating artwork is part of the collecting practice. For others, motivations can range from giving others the ability to view, enjoy, and learn from their collections to giving back to the community, to creating or continuing a family legacy around a specific artist or genre. Whatever the motivation may be, donating artwork and other collectibles is not a simple endeavor. Donors must consider whether selling the artwork and using the proceeds for charitable purposes is more advantageous than donating the artwork.
Understanding your philanthropic goals with respect to your artwork, advanced planning, and working with the right qualified public charity are essential before making any decisions. It is also critical to consult legal and tax professionals, as well as an art advisor during the decision-making process. There are lots of factors to consider but these key considerations should be top of mind for private collectors contemplating a donation of their art—philanthropic considerations, navigating tax regulations, and alignment with the recipient public charity. As we will explore, these considerations are not mutually exclusive, but rather, they are interdependent and should be considered in concert with one another.
Philanthropic Considerations
All decisions about philanthropy must start with your goals and objectives. It’s where you want to end up that informs where you start your philanthropic journey. This holds true whether you are deciding on the areas you want to support, the determination of the giving vehicle(s) you might use to facilitate your philanthropy, or how you will support your nonprofit partners. In the case of using artwork as a vehicle for helping others, there are two primary paths that you can take: 1) donating a piece or a collection and 2) selling the piece or a collection to donate the sales proceeds to charitable organizations. Your goals inform either pathway. If your goal is to have your artwork enjoyed by the public or used as a tool for the education of art conservation, selling the artwork to another individual that will enjoy the artwork among family and friends won’t accomplish this. If, on the other hand, the goal is to not only support arts organizations but also other types of public charities in the community, then donating a piece or collection to a museum likely won’t accomplish that.
Navigating Tax Regulations
Philanthropic considerations cannot be the only type of consideration when contemplating a donation of artwork. Internal Revenue Service (IRS) regulations are not as straightforward as you might expect. For example, if you are the creator, your artwork is usually treated as income-producing property by the IRS, and therefore no charitable tax deduction is available, nor is donating a viable option.
For collectors of artwork, a charitable tax deduction for the fair market value of the artwork, limited to 30% of the donor’s Adjusted Gross Income (AGI), may be available to the donor, and the donation may not be subject to capital gains tax if certain conditions are met by both the donor and the recipient public charity. The donor typically must have owned the artwork for more than one year before the donation and obtain a qualified appraisal, as defined and required by the IRS. The recipient public charity’s use of the artwork must be related to its tax-exempt purpose. For example, a donation of artwork to an art museum would likely satisfy the “related use” condition, whereas that same donation to an animal shelter most likely would not. The period of “related use” by the public charity depends on the value of the artwork; at least one year if the artwork is valued below $5,000 and three years if it is valued at $5,000 or above. Going back to the philanthropic goals, if support of animals is on your list of priorties, a donation of artwork is probably not the right gift for you or the animal shelter.
However, if your goal is to support animals, then selling the artwork and donating the proceeds may make a viable option, especially as prices for some pieces of art reach into the stratosphere. While tax considerations may not be the driver when it comes to philanthropy, they typically are a driver and, therefore, should be taken into account. If the donor has owned the artwork for over a year, they may be required to pay capital gains tax on the sale. Donations of the cash proceeds to qualified public charities typically garner the donor a charitable tax deduction of up to 60% of AGI. Engaging a tax professional can help determine whether the additional charitable tax deduction for a cash donation exceeds the capital-gains tax on the sale of the artwork. If the philanthropic goal is to raise as much money as possible through the sale of the artwork, then the tax ramifications may not be a part of the equation.
Alignment With the Recipient Public Charity
Finding the right organization to accept a donated piece or collection and aligning on terms and conditions of the donation is critical. With more than 35,000 museums in the United States along with other public charities that accept donations of artworks, finding the public charity that fully aligns with your needs and wants as a donor requires a few simple steps.
If the donor has owned the artwork for over a year, they may be required to pay capital gains tax on the sale.”
A preexisting relationship with the receiving institution can help facilitate a seamless donation process, as museums rarely accept unsolicited donations of artworks. Engaging an art advisor can help in finding the right public charity for the donation, and legal counsel can help negotiate the terms of the donation. Major museums may be less inclined to accept a proposed gift of a complete collection; less notable art institutions may have more flexibility and space when it comes to donations of artwork. Some museums may accept the artwork, choose to put it in storage rather than display it, or ultimately decide to sell it, decisions that may not sit well with the donor. Once the donor puts conditions around the donation of the artwork, for example, when and where the artwork must be displayed, museums may be less inclined to accept the donation. Donors may also consider additional funding for collections management, curatorial expertise, conservation and preservation, and exhibition and storage space. Having an open dialogue with the institution about your goals enables streamlined planning and ensures the donated artwork fits within existing collections or the institution’s plans. It’s also important that both parties agree and document how the donors wish to be acknowledged for the gift, ranging from the credit line accompanying the artwork when it’s exhibited to naming rights for a gallery or special exhibition.
Remember to bring key partners into the process, such as legal counsel, tax professionals, and art advisors who can provide tailored guidance, exercise negotiating expertise and document the transaction to ensure clear enforceable terms. While there is much to consider, advanced planning, including a clear vision of your philanthropic goals, understanding the regulatory landscape, and working closely with recipient organizations, can guide your decisions. Artwork, whether donated outright or donating the proceeds from its sale to a public charity, can be transformative for many institutions. Better yet, a gift of artwork can be priceless.
