Art Appraisal: Definition
Art valuation or art appraisal, an art-specific subset of financial valuation, is the process of estimating the market value of works of art. Art valuation involves comparing data from multiple sources such as art auction houses, private and corporate collectors, curators, art dealer activities and specialized market analysts to arrive at a value. Art valuation is accomplished not only for collection, investment, divestment, and financing purposes, but as part of estate valuations, for charitable contributions, for tax planning, insurance, and loan collateral purposes.
Qualifications of a Certified Appraiser
Certified Membership represents the highest level of accomplishment for members of the Appraisers Association. Certified Members have the most extensive level of expertise, qualifying education and a minimum of ten years of experience as an appraiser of personal property, specializing in the fine arts.
Most Insurance companies will require an appraisal for items valued over $5000.00, but some as low as $2000.00 and others more accustomed to fine art coverage, only require an appraisal on items over $50,000.00. Check with your insurance carrier.
According to IRS Regulation 561, all artwork donations must meet specific criteria: The IRS mandates that a charitable contribution of an item with a fair market value of more than $5,000.00 must have a "qualified appraisal" by a "qualified appraiser" attached to your return. For items valued at $50,000.00 or more the IRS will submit the appraisal to the Art Advisory Panel for additional scrutiny and evaluation.
If possible, choose to donate a property whose value would be assessed as a long-term capital gain rather than ordinary income.
Remember the "IRS related use rule": Make sure your gift is intended for a qualified public charity whose mission is in alignment with art . Typically, art contributions are made to qualified organizations that are museums or educational institutions that have public charity status. The tax benefit of the donation could be significantly compromised if the charity sells the item or does not make it available for viewing for a minimum of 3 years following the donation.
Request an official deed of gift from the qualifying charity, describing the property and specifying the date of the donation.
Be sure to share your intentions to make a gift with your CPA or tax professional and submit all materials for his or her review prior to posting your tax return.
Qualified fair market value appraisal reports for IRS charitable contribution are among the most demanding documents an appraiser is asked to produce. They require considerable time to prepare and must include specific elements to be accepted by the IRS. Most importantly, you should select an appraiser who has established expertise in the specific type of artwork you are intending to donate and is member of an accredited appraisal organization.
Estate Federal Tax Liability – 2017 – Estate Valued over $5,490,000.00
The IRS requires a "qualified appraisal" by a "qualified appraiser" for each work with projected value above $3,000.00. Every state varies on estate tax rules, so check with your accountant. Some states, such as Oregon collect estate taxes on estates valued over $1,000,000.00.
Similar in structure to charitable donation, qualified, fair market value appraisal reports for IRS Estate Tax Liability are demanding documents for an appraiser to produce. They require considerable time to prepare and must include specific elements to be accepted by the IRS.
This is an important part of divorce and estate planning and can help eliminate painful and costly family disagreements. An impartial expert determines the Fair Market Value of all of the Artwork and other appreciable assets so the family members are not left to guess or assume value.
How much can I get for this item, and how do I go about selling it? It is important to know the current Fair Market Value of an item you are selling. Many people make the mistake of selling a valuable painting for far less than its current market value, losing thousands of dollars. On the opposite side, people are confused and disappointed when something sells for far less than what they “think” it should be worth. An appraisal is not a guess, it is a carefully prepared document, based on research, sales comparables and years of experience in the art market.
Damage and Loss of Value
The appraisal should state the value of the item prior to damage. The report might also suggest the anticipated value of the damaged artwork when the recommended conservation treatment has been preformed. These reports often require the assistance of professional conservators to complete.
Bankruptcy and Dissolution