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In December, one of your clients, Tim Huffman, donated a valuable piece of art to a local charity to be auctioned at its annual fundraising auction
In December, one of your clients, Tim Huffman, donated a valuable piece of art to a local charity to be auctioned at its annual fundraising auction. When Mr. Huffman donated the art, it was appraised for $20,000. However, at the auction held on January 20, 2014, it sold for $35,000. Mr. Huffman claims that the appraisal was obviously wrong and that the value of what he donated was obviously $35,000. Consequently, he wants to deduct $35,000 on his tax return.
Discussing the tax implications of the appraisal and subsequent sale of the art he donated.
I'm having trouble finding the laws/rules about this.
Expert Solution
Tim Huffman donated a piece of art to a local chart to be auctioned at its annual fundraising auction.
It was appraised at $20,000 on the date of donation. But the auction was held at a later date and it was sold $35,000.
The Contribution made in kind are to be valued at the date of donation. This is also clarified by IRS through publication 561 - Determining the value of donated property (02/2020) and publication 526 - Charitable contributions.
So, he can only claim a deduction of $20,000 (fair market value of date of donation) for federal tax purpose and not $35,000 (This is the fair value on the date of auction but not on the date of donation)
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