Art and Taxes: What You Need to Know
If you have a passion for collecting art, you know the joy and excitement a new piece can bring.
But just like your bank and brokerage accounts, the painting hanging on your wall or sculpture sitting on your mantle are assets — and can have a significant monetary value. That value may come with a few important tax considerations.
First, you might decide to gift art to a loved one during your lifetime.
Let’s say the piece’s value is $14,000 or less, and you haven’t used your $14,000 annual exclusion amount for another gift to the donee. The gift may be entirely gift-tax-exempt in 2015. If the value exceeds $14,000, a portion of the gift may be subject to federal gift tax up to the 40% maximum rate.
Or, you might decide to donate art to a charity. Your income tax charitable deduction will depend on how the charity uses your gift.
Let’s say you gift a painting to an art museum that will display it or use it for educational purposes. In this case, your deduction value might be the market value of the painting.
But if you gift the painting to a community center that will sell it for cash, your deduction value might be much less. It’s limited to your cost basis of the painting.
Either way, if you donate art to a public charity, your deduction will be limited to no more than 30% of your adjusted gross income. Compare that to a 50% limitation when you donate money to a public charity.
Finally, you might decide to sell a piece of art.
If you sell a piece of art, you’ll typically be subject to a long-term capital gains tax. Plan for a rate of 28% — not the 15% or 20% rate applicable when you sell stocks or bonds.
Of course, the rewards of sharing your passion for art with loved ones and charities might far outweigh the financial and tax considerations. It’s just a matter of making informed decisions with your unique goals and priorities top of mind.