Deducting materials? Is a written appraisal required or do they just submit receipts?

ISA members are invited to send in their questions on all things appraising and education to Leon Castner, ISA CAPP. Leon will share his answers on the ISA Now Blog. Please send questions to leoncastner@comcast.net.

Question: An artist is donating a work to a museum. I understand they can only deduct the cost of the materials, which in this case is over $21,000. Since this amount is over the $5,000 threshold, is a written appraisal required or do they just submit receipts?

Answer (from Karin Gross, Office of the Chief Counsel for the IRS:Yes, the artist needs to have the work appraised. The fair market value allowed would either be the cost of the materials or the value based on comparable sales – whichever is less. (Just because an artist has $21,000 in materials doesn’t mean it would sell for that much.)

Aside (Leon): The item must be appraised for fair market value using the sales comparison approach. If the comparables suggest the piece has a fair market value of only $5,000, that’s the amount – not the $21,000. Very interesting!

Trivial Pursuit III
Tidbits Taken From our Core Course Exam
These statements are ALL TRUE!

1. A USPAP certification must be proceeded by the words identical or similar to “I certify.”
2. An electronic signature is acceptable in an appraisal report.
3. The present worth formula is often used in an appraisal blockage analysis.
4. Age-life depreciation is often applied without discrimination to the property’s condition or to the property’s level of use.
5. Appraisers are responsible for recommending to their client if authentication should be done.