Can I Deduct My Art When I Contribute it?
It is widely believed in the art world that you can take the fair market value of the art that you create as a deduction on your taxes. This idea is often repeated by groups who want artists to contribute their art to them for various reasons including auctions. This belief, unfortunately, is incorrect.
There is a distinction to be made between the people who create the art (or manuscript) and people who have bought the art. If they satisfy certain conditions, the people who bought the art are entitled to deduct the fair market value of the art. The people who create the art are only entitled to deduct the cost of the materials that went into the work. But artists (and writers and photographers) deduct the cost of all their supplies in the year they incur them. Thus the net effect of this is that the contribution that can be deducted by an artist for the gift of a work of art is zero.
How did this come to be? Perhaps this story is apocryphal but my understanding is that when Richard Nixon received a contribution value of more than one million dollars for the contribution of his manuscripts to a library, Congress changed the rules so that people who created the work could only take the cost of materials (which as we’ve seen is fairly meaning -less). There have been bills in Congress to change this rule back but as of now they have not been passed.
Some people think that if they give their work to someone else, that second person will be able to take the full deduction. This belief also is not correct. What something costs is called basis. Basis doesn’t change because someone gifts something. Further this holds true in a divorce. The divorced spouse cannot take a fair market value contribution of a work just as the original creator cannot take one.
Thus am I really saying that the person who pays $1000 for a work that becomes worth $500000 can possibly then take $500,000 worth of deductions if they give it to an art museum who will accept it? And that if the artist who created this work were to contribute it, she or he would get no deduction? Yes.