Dear Dr. ©:
I’d like to make a donation to a charity, such as my college. I have some copyrights. May I donate them and take a tax deduction?
First, the answer is Yes, you may donate a copyright to your college. Since copyrights last a very long time (if it’s your personal creation, it will last until seventy years after your demise) this kind of donation may be the gift that keeps on giving. To donate a copyright, it’s wise to first register the copyright with the United States Copyright Office (www.copyright.gov) and then draft an assignment or deed of gift (some colleges have forms for this, but many do not) and record it in the copyright office. Both the registration and recordation require payment of a small fee (of course…what self-respecting government agency does things for free?)
When you donate your copyright, you’re giving the donee the right to receive income from the property. A few famous copyrights have been donated and have benefited their institutional owners. For instance, J.M Barrie donated Peter Pan to the Great Ormond Street Children’s Hospital in London. It turned out to be worth millions of dollars. Irving Berlin donated the copyright to God Bless America to the Boy and Girl Scouts. Again, millions!
As for the tax deduction, since the “Doc” is not a tax attorney, he recommends that you consult one, or an accounting professional. But (and there is always a “but”) if you’re the creator of the copyright, your deduction will be limited to your “actual cost basis”, not the fair market value.
According to the Internal Revenue Code, Section 1221(3) explicitly provides that artistic property is not a capital asset and, thus, not entitled to long-term capital gain treatment (and thus, a deduction at fair market value.) Although Section 1221 of the Code defines a capital asset as “property held by the taxpayer (whether or not connected with his trade or business); Section 1221(3) excludes from the term “capital asset”– “a copyright, a literary, musical or- artistic composition, a letter or memorandum, or similar property, held by — (A) a taxpayer whose personal efforts created such property, (B) in the case of a letter, memorandum, or similar property, a taxpayer for whom such property was prepared or produced, or (C) a taxpayer in whose hands the basis of such property is determined, for purposes of determining gain from a sale or exchange, in whole or part by reference to the basis of such property in the hands of a taxpayer described in subparagraph (A) or (B).”
What does this mean? Unless you’re a publisher acquiring rights from others that you then donate, you may not get much of a tax deduction at all!
So, if you have copyrights just sitting around, consider giving them away, even if you can’t get a tax windfall. Your alma mater may thank you.
— Lawrence A. Husick, Esq.