Rent Property to Charity and Win …

One important exception to this concept concerns loaning works of art. If art is loaned to a charitable organization that’s described in IRC section 501(c)(3) and is exempt from tax under IRC section 501(c) and the use of the art is related to the organization’s charitable purpose, e.g., a loan of a painting to an art museum, the loan won’t be treated as a taxable transfer for federal gift- or estate-tax purposes. The art must be a “qualified work of art” defined in the IRC as “any archaeological, historic, or creative, tangible
personal property.”

This arrangement requires careful planning to avoid an undesirable federal tax result. But it does provide the opportunity for an organization to benefit from a donor’s generosity while allowing the donor to retain control over the ultimate use of the property.

Kathleen A. Stephenson is of counsel with the Philadelphia office of Pepper Hamilton LLP. Lisa B. Petkun is a partner in Pepper Hamilton’s tax department.