Art inspires thought, evokes emotion, and engages the beholder. And, while many people would consider those concepts priceless, when tax time rolls around, the law requires you to assign a dollar amount.
But, assigning a value to artwork can be a difficult proposition. As the saying goes: “art is in the eye of the beholder,” which makes valuing it inherently biased. Appraisers often rely on objective factors, such as size and comparable sales. Other subjective factors that affect the value of art pieces are less precise, making it more difficult to pinpoint an exact value.
Because there is no exact science, the IRS relies on the principle of fair market value, which it defines as the price at which property would sell on the open market between a willing and reasonably knowledgeable buyer and a willing and reasonably knowledgeable seller, behaving in their own best interests, free of undue pressure. Based on these parameters, a fair market value should represent an accurate assessment of worth.
The IRS, though, only grants art owners and collectors latitude to assign a fair market value to a piece or a collection worth $5,000 or less. More valuable pieces must be appraised by a qualified appraiser, someone who specializes in the medium and style of the piece. And, if the appraised value exceeds $20,000, taxpayers must submit a copy of the appraisal with their tax return.
The IRS’ Art Appraisal Services Division (AAS) is also available to support taxpayers needing assistance in valuing their artwork. Prior to submitting a tax return, taxpayers can request a Statement of Value from AAS, which places the responsibility of determining the value of a work of art on the IRS; however, such a request can only be made prior to tax filings.
While there may not be any rules when it comes to art, there are certainly plenty of them when it comes to valuing it. Granted, the various objective and subjective factors could create varying opinions as to the work’s fair market value, but reporting a value at the higher end of the range when filing taxes could invite unnecessary scrutiny. Working with qualified appraisers and experienced tax advisors, like Boris Benic and Associates, is the best way to ensure your art provides a sense of happiness, not stress. Contact us if you’d like to discuss further.