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ExampleSimilar property to Single Nonprofit
Eliza was an avid art enthusiast and over time became quite the art collector with various beautiful paintings proudly displayed in her home. She decided it was the right time to donate an impressionist art painting to a local museum. She had owned the painting for over a year, valued at approximately $4,500. Later that same year, she decided to contribute a long-term held realist painting valued at approximately $3,700 to the local museum. As an end of the year campaign, Eliza wanted to donate a photograph collection she purchased some time ago, valued at approximately $7,000.
Eliza knew based on the projected value of the photography gift she would need to obtain a qualified appraisal, but her advisor informed her of the need for two qualified appraisals. One appraisal was to value the impressionist and realist art collections because as a group the value exceeds the $5,000 threshold. The other appraisal was for the photographs. The appraisal of the paintings as a group satisfied the Service's definition of "similar items of property." Reg. 1.170A-13(c)(7)(iii). The photographs are not the "same generic category or type," which is why she was required to obtain a separate appraisal for that donation. Because her gifts are all to the same organization, she is able to attach a single appraisal summary for the paintings as a similar group but will need a separate appraisal summary for the photographs.
Example Similar property to Multiple Nonprofits
Donald, a passionate art connoisseur with a background in art studies and a diverse collection of rare pieces, was eager to contribute to the preservation of historical and cultural heritage. He decided to donate two items, the first was a pre-revolutionary art sculpture and the second was a statuette of a renowned general from the same historical era. Donald decided he would donate these pieces to two different organizations. The larger sculpture was valued at approximately $3,700 and was gifted to a nonprofit organization specializing in historical memorabilia, particularly focusing on documenting America's rich political and cultural heritage. The statuette was donated to a local museum known for its commitment to showcasing the history and culture of the area. The statuette was valued at $2,300.
Later that same year, Donald donated a rare coin collection that he had curated for over a year to a nonprofit dedicated to the study and collection of coins and other forms of numismatic items. The estimated value of the coin collection was $5,500. Recognizing that his coin collection exceeded the $5,000 threshold, Donald knew he would need to obtain a qualified appraisal. However, his advisor also informed him that he would need qualified appraisals for both the sculpture and the statuette because together, the sculpture and statuette as a group satisfied the Service's definition of "similar items of property" and exceeded the $5,000 threshold. Consequently, Donald is required to obtain qualified appraisals for the sculpture and statuette. Because Donald's gifts are being donated to three different organizations, Donald must attach three separate appraisal summaries to his return.
ExampleFuture Interest in ArtGifts of Undivided, Fractional Interests
Carol owns a collection of paintings by famous artists. Carol wants to allow others to enjoy her famous painting collection at a local art museum, but wants the paintings returned after the museum's showcase has concluded. The museum has agreed to the terms and Carol agrees to lend the paintings to the museum periodically for display purposes. Since this is a loan and Carol has not relinquished control, there is no current charitable income tax deduction. Carol retains all ownership rights over the paintings and has not made a charitable donation of the paintings.
Example Gift of Undivided InterestGifts of fractional interests in art and other tangible personal property are generally deductible. Reg. 1.170A-5(a)(2). The amount of a donor's charitable deduction for the initial donation of a fractional interest in tangible personal property is based on the fair market value of the artwork at the time of the contribution of the fractional interest. Sec.170(o)(3). If several fractional gifts from the same tangible personal property asset(s) are made over time, the deductions from additional contributions will be based on the lesser of the initial asset fractional value or the fractional value at the time of the additional contribution. Sec. 170(o)(2)(A). This valuation method applies to income, gift and estate taxes. All fractional gifts must be completed within 10 years or the donor's death, whichever is earlier. Sec. 170(o)(3)(A)(i).
Robert donated a 10% undivided interest in a collection of art to a nonprofit art institute. In the second year, he gave another 10% undivided interest in the collection of art. In the third year, Robert transferred the remaining 80% undivided interest in the collection's pieces. Because the art institute was given possession and control of the artwork for a portion of each year appropriate to its interest, and then received the remaining interest, each year the gifts qualified as a gift of an undivided portion of the donor's interest. Robert obtained the appropriate qualified appraisal each year for the contributions. Thus, a charitable deduction is permitted. In the early years, the charitable deduction may be discounted due to minority ownership.
ExampleGift of Fractional InterestAdditionally, the nonprofit must take substantial physical possession or make use of the property for an exempt purpose within one year of the initial gift or within one year of any additional gifts. If these tests are not met, charitable income and gift tax deductions for all previous contributions of interest in the item will be recaptured with interest. If deductions are recaptured, there is an additional penalty tax equal to 10% of the recapture amount. Sec.170(o)(3)(B).
Laura, a generous donor, decides to donate a one-fifth or 20% undivided share in her long-term appreciated painting, valued at $1,000,000, to a charitable organization dedicated to advancing and promoting arts and arts education across the nation. Because this gift is for a related use and is also a capital asset, her charitable deduction will be $200,000, the FMV of the artwork at the time of the contribution of the fractional interest (20% of $1,000,000). Laura decides that for the next four years, she will continue to donate an undivided one-fifth interest in the painting, until year 5 when the charity has full ownership of the painting. During this time, the painting continues to appreciate in value. In Year 2, the painting is worth $1,200,000, in Year 3, it is valued at $1,400,000, in Year 4, it reaches $1,600,000 and by Year 5, it is appraised at $1,800,000. Because the deductible amount for additional contributions is limited to the lesser of the FMV for the initial fractional contribution or the FMV of the item at the time of the additional (and subsequent) contributions, Laura will be limited to the $200,000 deduction for each of the 5 years based on the initial fractional interest contribution.
ExampleGift of Fractional Interest with Multiple OwnersTime Division for Artwork
Alice and Barry are siblings and own a painting together. Alice owns an undivided 40% interest and Barry owns an undivided 60% interest in the same painting. Alice makes a 50% contribution of her interest in the painting and additionally, Barry makes a 50% contribution of his interest in the artwork. Here, a charitable deduction is permissible since each owner made a proportionally equal contribution of their undivided fractional interests to the same charity. Alice and Barry plan to gift their remaining combined 50% interest to the nonprofit in the next year.
ExampleTimeshare Gift of Art
Leslie owns a valuable painting and plans to travel extensively, especially during the winter months in the coming years. She would like to retain ownership of the painting for five months of each year. She transfers the ownership of the painting to the art museum for the remaining seven months each year. Leslie will receive a charitable deduction for 7/12 of the value of the painting. Going forward, the charity and Leslie have joint ownership based on their respective time division for the artwork.
A charitable gift annuity is a great way you can make a gift to our organization and benefit. You transfer your cash or property to our organization and we promise to make fixed payments to you for life at a rate based on your age.more
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