Question

David donated a painting to the Leigh Yawkey Woodson Art Museum. He bought the painting 20 years ago while on a European vacation for $6,000. David had the painting appraised by the owner of Nature's Beauty art store in Eagle River, a qualified art appraiser, who estimated its value to be $11,000. David believed the painting was worth more than $11,000, so he had it appraised by an art dealer in New York. That dealer, also a qualified art appraiser, appraised the painting at $15,000. David itemizes deductions on his annual tax return and takes a charitable contribution of $15,000. Was David justified in taking the deduction based on the higher value? What forms if any, need to be in his return? What documents documentation should he keep with his tax return, just in case of audit?

Answer 1

When a tax payer itemizes a deduction on the tax return he is entitled to claim the monetary value of the donation that he has made in form of non-cash.

Since David had donated a painting to the art museum, first it should be confirmed whether the organization to whom the property is donated is qualified for receiving the donations. If yes, than the next step is to value the property donated in terms of money. To value the monetary value of painting a fair market price should be considered.

A fair price is the price that a buyer is willing to pay to purchase the property, painting in this case. Hence the donation amount that is deducted from the taxable income is correct as the painting can be easily sold in the market for 15k.

For the documentation purpose of the donation that is made to the museum, there is “Donee acknowledgement” section in the section "B" of the part IV of irs form 8283. here the acknowledgement should be submitted and a copy of this 8283 should be forwarded to mercantile analysist. Here the property donated will be valued and the price of the deduction that is to be allowed will be calculated at the best and then the amount that will qualify for the deduction will be accessed.