Art Appraisal for Tax Purposes: Overview of 5 Valuation Principles Used by Qualified Appraisers

Valuable artwork is not just owned by art collectors. Even people with not much experience in collecting art could probably own a painting or two. But what actually happens to this artwork is what is interesting to know. One, it will either be donated as a non-cash charitable contribution, or two, it will become a part of the owner’s estate and be subject to estate tax. This is where the need for an art appraisal for tax purposes arises.

According to the Internal Revenue Service (IRS), only a qualified appraiser can perform an appraisal. Let’s find out more about what the IRS means by this.

Who is a Qualified Appraiser?

An individual who is knowledgeable and experienced in valuing specific types of property, such as art items, for a specific purpose is known as a qualified appraiser.

According to the IRS, a qualified appraiser is an individual who has earned an appraisal designation from a recognized professional appraisal organization. He could also be someone who has met certain minimum education requirements and work experience as set forth in the IRS regulations.

It’s important to note that not all appraisers are qualified appraisers. While anyone can claim to be an appraiser, only those who meet the qualifications set forth by the IRS can provide a qualified appraisal for certain tax-related purposes.

This is important because the IRS requires a qualified appraisal for certain types of charitable contributions, gifts, and estate tax returns. Failure to obtain a qualified appraisal can result in penalties and other legal consequences.

If you need an art appraisal for tax purposes performed, experts from Appraisily can help you.

Role of a Qualified Appraiser

The role of a qualified appraiser is to provide an accurate and reliable valuation of the art item that is compliant with the relevant tax laws and regulations. The appraiser must be objective and impartial in their appraisal, and must not be influenced by the owner or any other interested parties.

The appraiser’s valuation must be based on factual information and supported by relevant market data. The appraisal findings must be provided in a written appraisal report that meets the requirements of the IRS regulations.

Art Appraisal for Tax Purposes — 5 Valuation Principles

As already mentioned art appraisals are important for many reasons, including insurance, estate planning, and tax purposes. In particular, when it comes to taxes, it’s important to have an accurate valuation of art items in order to properly report their value and avoid potential legal issues.

That is why it is essential that a qualified appraiser follow specific principles to determine the worth of an art item. Let’s find out what are these principles that are used to determine the worth of an art item for tax purposes.

1. Market Analysis

The first principle that a qualified appraiser follows when valuing an art item is market analysis. This involves researching the current market for similar items, including recent sales prices and current asking prices of that kind of artwork. By analyzing the current market, an appraiser can determine the fair market value (FMV) of an art item. And, what is FMV? It is defined as the price at which the property would change hands between a willing buyer and a willing seller. It is important that neither should be under any compulsion to purchase or sell and both should have enough knowledge of the relevant facts.

2. Artistic Analysis

This principle involves examining the art item to determine its authenticity, condition, and provenance. The appraiser will examine the art piece to determine if it is an original work or a reproduction. Appraisers also look at the condition of the artwork as this can greatly affect its value. The appraiser will also look at the provenance of the art item, which refers to its ownership history. Why? Because this too can impact the value of the art item.

3. Comparative Analysis

Another significant principle is that of comparative analysis. It involves comparing the art item being appraised to similar items that have been sold in the past. The appraiser will look at factors such as the artist, the style, the medium, and the condition of the item. By comparing the item to similar items that have sold, the appraiser can determine a fair value for the item and accordingly decide on its current worth.

4. Use Analysis

The fourth principle that a qualified appraiser follows during an art appraisal for tax purposes is use analysis. This principle involves determining the purpose of the appraisal and how the item will be used. For example, if the art item is being appraised for insurance purposes, the value may be different than if it is being appraised for tax purposes. The use of the item can also impact its value. For instance, if an art item is part of a public collection it may have a higher value than the same item if it is part of a private collection.

5. Professional Judgment

The final principle that a qualified appraiser follows is professional judgment. This involves taking all of the above factors into account and using professional expertise to determine a fair value for the art item. Appraisers must be knowledgeable about the appraisal standards being used in the art market and should have experience in appraising similar items. They must also be objective and impartial in their appraisal. This is because their role is to determine the fair market value of the item, not to advocate for the owner or the buyer.

While it is important for an art appraiser to carry out an accurate appraisal, what is also important is how trustworthy and genuine the appraiser is. A fair and accurate valuation of an art time is the result of an informed and knowledgeable art appraisal.

If you need an art appraisal done for tax purposes, contact experts at Appraisily. They have decades of experience and can easily help you with the appraisal of your valuable artwork.

https://www.journalofaccountancy.com/issues/2010/jul/20092096.html

https://www.law.cornell.edu/cfr/text/26/1.170A-17

https://design.fineartestates.com/how-do-i-get-my-art-appraised/

https://www.irs.gov/publications/p561