Definitely NOT a gray area! Anything you have purchased or was gifted to you must be declared at Customs.
As a citizen, you have an exemption of a certain dollar amount. (IIRC, somewhere around $800) If it was a gift, you may estimate the value to the best of your ability. Not declaring it is a violation of the law.
The duty that must be paid depends on the item. Some items have little or no duty, some have a higher duty. Once you have listed your items on the declaration, the customs official will help you determine the duty owed if any. It has been my experience that honesty is the best policy. When I came back from a trip to Asia, carrying a variety of items, I carefully listed them all. The customs officer put the items having the highest duty under my exemption, and when all was said and done, I think I owed something like $12 on $2500 dollars of stuff.
You can look up the duty on a handmade instrument... it may not be that high and certainly it is not worth the risk of smuggling the item into the country. If caught, you pay penalties and may have the item confiscated.
is a link to the Customs page. It depends upon the country of origin. There may be *no* duty at all, or as much as 40% if you are buying it from North Korea for import into the US!
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Classical Guitar forever!