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Art as an Investment

You should take care to protect your paintings, sculptures and other works of art.


As appeared in Wealth magazine

Art as an Investment

You should take care to protect your paintings, sculptures and other works of art.


If you have a passion for acquiring works of art, you know the personal pleasure collecting can bring. But to ensure your treasures stay safe, are well maintained and eventually end up with those who will continue to appreciate them, consider your collections as assets.

“Certainly, you think of assets in terms of bank accounts and brokerage accounts,” says Russell Johnson, a senior estate administrator at Northern Trust. “But don’t forget that things hanging on the walls in your home or sitting on your tabletops can actually have significant value.”

Just as you take steps to protect your more traditional assets, take steps to protect your art collection.

Insure Your Art Collections

Your homeowners insurance policy might not cover your collection. But specialized insurance companies offer policies tailored to art collections over and above standard homeowner’s coverage. The cost is based on the collection’s value. “These companies frequently have a level of expertise in dealing with such items, a knowledge of the market for such items and experience in resolving claims involving art as made under those policies,” Johnson says.

Understanding the current value of your collection is key to maintaining adequate insurance. Insurance value is generally set at the high end of retail value and based on the price you might pay to find a replacement work of art in a “reasonable time” as defined by the Internal Revenue Service.

Tony Karman, president and director of EXPO CHICAGO, the International Exposition of Contemporary and Modern Art, suggests working with an art appraiser or advisor at least every three years to assess your collection’s current value.

Include Art Collections in Estate Plans

“The IRS and others who are looking at estates after death now know that art is an important part of a portfolio,” Karman says. So as part of estate-planning considerations, determine whether your collection should remain intact or be broken up, Johnson says. It may have more value one way or the other. That decision may also affect how you pass it on. For example:

  • Selling your collection: “We are working with one client who is selling a collection and donating the money to a charity,” Johnson says. “The charity needs the money but has no use for the art.”
  • Dividing your collection among children: First determine if your children even want it. Then you can decide how to divide it equitably among the children who are interested.
  • Donating your collection to a museum: Discuss your plans in advance with the intended museum to see if it is interested in your collection. If not, look for a museum that is.

Consider Tax Issues With Art Collections

If you want to gift your collection to a charity during your lifetime, you can maximize your income-tax charitable deduction by donating it to a charity with a related use for the collection. If you gift a painting to a museum that will use it for display or educational purposes, for example, your deduction amount may be the market value of that painting. If you gift it to a community center that will sell it for the cash, your deduction amount may be limited to your cost basis of the painting, which often is a significantly lesser amount, Johnson says.

If you want to donate the value of your collection to a community center, you could sell the collection and donate the cash. However, the sale of collectibles currently is subject to a long-term capital gains tax rate of 28%, rather than the 15% rate (or 20% rate for those in the highest tax bracket) in place when selling a stock or bond.

Another tax consideration relates to annual limits on charitable deductions for income-tax purposes. If you donate money to a museum, you can claim a maximum charitable deduction in the same year up to 50% of your adjusted gross income. However, if you donate a piece of art to the museum, the deduction limit is set at no more than 30% of adjusted gross income. “You may not lose the remainder of the deduction amount that exceeds the applicable limit,” Johnson says. “You may be able to carry it forward to use as a deduction in a future year.”

Keep Your Family Informed

Keep detailed, organized records on collections, so if a family member needs to identify a work of art, he or she can. That could be as simple as taking a photo of each item and writing the name of the work on the back.

In addition, keep a record of each piece’s location. Johnson recalls an instance in which he was in a client’s backyard and saw what he thought was a pile of rocks. The client’s daughter informed him that the “pile of rocks” was a sculpture by a famous artist that was worth about $1,000.

The rewards of sharing your passion for your collection with loved ones far exceed the financial side. “Such sharing opens up the possibility of leaving those family members not only well informed but also with a group of tangible items after the collector’s death that may have a sentimental or emotional value derived from the sharing experience,” Johnson says.