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For A Limited Time Only: Donate Art And Deduct

For A Limited Time Only: Donate Art And Deduct

Collectors with museum-quality paintings on their walls should know about "the window." That's what tax advisers call the limited-time offer that Congress built into the late-1990 tax law: Donate art to a museum in 1991 only, and you're in line for a big tax break. For some top-bracket taxpayers, the deduction could be worth 40% of the art's value.

For many years, deep-pocket donors received full-value deductions for gifts of appreciated art. Deeming it an unfair advantage for the wealthy, Congress in 1986 removed the incentive to make such donations: It made the difference between the original cost and the higher current value subject to the alternative minimum tax (AMT).

GIFT GAP. Let's say your adjusted gross income is $100,000. Years ago, you paid $5,000 for a painting worth $65,000 when you donated it. The $60,000 appreciation was subject to the AMT. A couple filing jointly starts with a $40,000 AMT exemption, but might use up $10,000 of it with state and local taxes, notes Bob Coplan of accountants Ernst & Young. In that case, the AMT, now 24%, could apply to $30,000 of that appreciation.

The result stunned the art world. From 1986 to 1989, the number of donations to major U. S. museums fell 47%, says the American Association of Museums. Soaring prices at auctions contributed to the drop-off, but the tax change has clearly made things worse.

Thus the battle with Congress to restore the break. As long as it's donated before 1992, anyone can deduct the fair market value of art, furniture, and other "tangible personal property" without worrying about the AMT. Art aficionados hope a surge in donations will persuade Congress to make the modification permanent. If it isn't extended, and if you gave art worth more than 30% of 1991 income, you can carry over the excess to deduct in future years, along with the AMT exclusion.

To qualify for the fair-market deduction, property donated to a charitable organization must relate to its work. So if you give a painting to a hospital, you can deduct only the original cost.

ART SLUMP. The fair-market value is based on an appraisal of comparable works sold at auction. In today's slumping market, the object's appraised value might be higher than what you could sell it for. The Art Dealers Association of America (212 940-8590) can help with appraisals. If your donation is worth more than $20,000, the IRS is more likely to audit.

Of course, selling art can still be more lucrative than giving it away. "But the rewards of donating transcend financial matters," says Gilbert Edelson, an officer of the Art Dealers Association. "It's an investment in the cultural patrimony of this country."