If the nonprofit will continue to use the painting for its charitable purpose, you may take a charitable income tax deduction equal to the painting’s fair market value, up to 30 percent of your adjusted gross income.

If the painting will not be used in a mission-related manner, different tax rules apply. Assuming you sell the painting and donate the proceeds, be aware that your gain may be taxed at a 28 percent rate, not the standard 15 percent rate. This gain may be offset by your deduction for donating cash proceeds, deductible up to a higher limit of 50 percent of your adjusted gross income.

These percentage limitations do not apply to charities, suggesting that donating the painting to the charity for subsequent sale is the better option. However, if the nonprofit sells the painting rather than using it for its charitable purpose, your deduction will be limited to your cost rather than the painting’s higher fair-market value.

In sum, if the nonprofit plans to continue to use the painting to further its mission, a direct donation is preferable. However, if the intended use is not mission-related, a sale by you, followed by a cash donation, is preferable. In any case, you should meet with your tax and financial advisor to determine the impact of each option in light of your unique situation.
Cary Grace, Bank of America National Philanthropic Management, Boston