Taxation Of Art

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Ralph E. Lerner’s “The Taxation Of Art”

Summary: Ralph E. Lerner discusses the Taxation of Art and Collections…

 

What Should I Do With My Art?

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1993 Probate and Trust Journal
1993 4th Annual Conference on Practical Aspects of Charitable Giving
1996 American Bankers Association Conference

Ralph E. Lerner’s “What Should I Do With My Art?”

Summary: In this article, Ralph E. Lerner discusses the possibilities for those looking for things to do with their art or collections, be it a possible donation, transfer, or sale of the art.

Excerpt:

I. CHARITABLE TRANSFERS

United States tax laws provide an incentive for individuals to contribute during their lifetime or on their death works of art to United States tax exempt organizations, that is, museums, universities and other organizations that display and make use of works for art in furtherance of their tax exempt purposes.  The lifetime transfer of a work of art to a charitable organization saves the individual donor income taxes because of the allowable income tax deduction; at the same time, the lifetime transfer relieves the donor of the expense and the worry connected with the maintenance of a valuable work of art. For example, a painting that cost the donor $1,000 some years ago may have a fair market value of $10,000 today. A contribution today of the painting to charity that meets all the requirements discussed below produces an allowable charitable deduction of $10,000. For someone in the 35.0 percent tax bracket, such a contribution saves $3,500 in federal income taxes. Since the donor’s out-of-pocket cost was only $1,000, the taxpayer has made a $2,500 tax-free economic profit and has enjoyed the use of the painting through its years of ownership at no cost. The problem is to make sure the contribution is correctly made, so that the tax benefit described is achieved. Note that the tax benefit just described is available only for contributions to United States tax-exempt organizations and not for contributions to foreign tax-exempt organizations.

If you would like to read the full article, you can click the link below to download a PDF version of  Ralph E. Lerner’s complete article.

What Should I Do With My Art?

Valuing Works of Art for Tax Purposes

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Ralph E. Lerner’s “Valuing Works of Art for Tax Purposes”

Summary: In this article, Ralph E. Lerner discusses how to correctly and accurately value works of art in order to properly assess the necessary taxes to be paid, or deducted.

Excerpt: Most people are collectors of one thing or another, and the number of people who are serious collectors with valuable collections is growing rapidly. In fact, paintings, stamps, coins, and other items of tangible personal property have increased in value at a much greater rate than have most stocks and bonds. As those collectibles increase in value, the estate planner must give them greater attention. Planning for the collector’s lifetime and testamentary disposition of tangible personal property to charitable organizations was made increasingly complicated as a result of numerous changes in the tax law, beginning with the Tax Reform Act of 1969, continuing through the Economic Growth and Tax Relief Reconciliation Act of 2001, the Jobs and Growth Tax Relief Reconciliation Act of 2003, the Pension Protection Act of 2006, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, and forward, with each year’s tax act containing new and complex provisions. It seems that hardly a year goes by without some new and arcane legislation to confuse collectors. The problems are complicated by the fact that in most cases items of collectible tangible personal property (hereinafter called “the collection”) are unique and difficult to value. Not knowing the value of the collection complicates the planning for its disposition.

 

Valuation and Tax Issues

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Ralph E. Lerner’s “Valuation and Tax Issues”

Summary: In this article, Ralph E. Lerner discusses evaluating certain pieces, as well as potential tax issues one can encounter with valuation.

Excerpt:

I. PENSION PROTECTION ACT OF 2006 – ART WORLD PROVISIONS

The Pension Protection Act of 2006 (hereafter the “PPA”) added new section 170(e)(7)(A) that provides if a charitable organization receives appreciated tangible personal property as a charitable contribution and disposes of the property within three years of receiving it, the donor may not derive any tax benefit beyond a deduction in the amount of the property’s basis.  However, this rule will not apply if the donee provides a “certification” from the donee charity that the property was intended to be used or was put to a use related to the donee’s exempt purpose.

A. RELATED USE RULE

The related use rule applies to capital gain property that is tangible personal property contributed to a public charity.  The term “tangible personal property” includes paintings and art objects not produced by the donor.  The related use rule requires that the use of the tangible personal property by the donee organization be related to the purpose or the function constituting the basis for the donee’s exemption under section 501.  If the use of the collection by the donee organization is unrelated to the purpose or the function constituting the basis for the donee’s exemption, the amount of the charitable deduction must be reduced by 100% of the appreciation in value of the collection.  In that instance, after the 100% appreciation reduction, the remainder may be deducted up to 50% of the taxpayer’s contribution base.

If you would like to read the full article, you can click the link below to download a PDF version of  Ralph E. Lerner’s complete article.

Valuation and Tax Issues

Tax and Estate Planning Issues Facing Owners of Tangible Personal Property: Surveying the New Gift Landscape for Artwork and Collections

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Ralph E. Lerner’s “Tax and Estate Planning Issues Facing Owners of Tangible Personal Property: Surveying the New Gift Landscape for Artwork and Collections”

Summary: In this article, Ralph E. Lerner discusses potential issues facing owners who would like to sell, donate, or move their art or collections. Included are steps, advice, and the relevant legal documents or institutions that one might encounter.

Excerpt: United States tax laws provide an incentive for individuals to contribute during their lifetime or on their death works of art to United States tax exempt organizations, that is, museums, universities and other organizations that display and make use of works for art in furtherance of their tax exempt purposes. The lifetime transfer of a work of art to a charitable organization saves the individual donor income taxes because of the allowable income tax deduction; at the same time, the lifetime transfer relieves the donor of the expense and the worry connected with the maintenance of a valuable work of art. For example, a painting that cost the donor $1,000 some years ago may have a fair market value of $10,000 today. A contribution today of the painting to charity that meets all the requirements discussed below produces an allowable charitable deduction of $10,000. For someone in the 35.0 percent tax bracket, such a contribution saves $3,500 in federal income taxes. Since the donor’s out-of-pocket cost was only $1,000, the taxpayer has made a $2,500 tax-free economic profit and has enjoyed the use of the painting through its years of ownership at no cost. The problem is to make sure the contribution is correctly made, so that the tax benefit described is achieved. Note that the tax benefit just described is available only for contributions to United States tax-exempt organizations and not for contributions to foreign tax-exempt organizations.


If you would like to read the full article, you can click the link below to download a PDF version of  Ralph E. Lerner’s complete article.

Surveying the New Gift Landscape for Artwork and Collections

The Taxation of Art – Dealer Investor or Collector

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Presented:

1996 Estate Planning Conference
1997 UJA Federation Conference
2000 Westchester Community College
2000 Boston Bar Association

Ralph E. Lerner’s “The Taxation of Art – Dealer Investor or Collector”

Summary: In this article, Ralph E. Lerner discusses tax issues in the United States. This includes specific cases, specific laws, as well as general definitions and guidelines of the tax system in place.

Excerpt: Maintaining a collection in good condition is expensive; the expenses may include framing, reframing, lighting, air conditioning and humidity controls, cleaning and other maintenance, security devices, publications, and insurance. The collector may incur travel and other buying expenses and fees when he or she adds to a collection. Those costs have increased substantially in recent years.

This section focuses on the deductibility of the expenses of maintaining a collection, the tax treatment of gains and losses realized on sale of a collection, whether a collection can be used in a tax free exchange, certain problems of insurance, and sales tax issues. Identification as a dealer, an investor, or a collector and the tax ramifications of each are discussed.

May an art owner deduct all, some, or a portion of such collection-related expenses and losses incurred in holding the collection as an investment, or are all those expenses nondeductible personal expenses incurred in a hobby for personal use and enjoyment? Before that question can be answered, it is necessary to determine whether the individual in question is a dealer, an investor, or a collector and to examine the general statutory provisions.

If you would like to read the full article, you can click the link below to download a PDF version of  Ralph E. Lerner’s complete article.

The Taxation of Art