Collected or inherited art that is both held for more than one year and has appreciated in value qualifies as a “collectible” under the Internal Revenue Code. It is therefore considered a capital asset. Capital gains tax will be owed when collectible art is sold by the owner. Capital gains tax will be owed on the difference between the current fair market value and the owner’s cost basis. If the owner donates appreciated artwork to a charity, such as the Giving Center, before a sale takes place, the collector can potentially negate the capital gains tax that would be incurred in a sale. This results in more to give to charity.
Charitably minded art collectors can receive tax benefits when they donate art to charity. Giving Center is a 501(c)(3) charity that can provide collectors with the ability to:
- Potentially eliminate capital gains tax on the sale of the art;
- Take a same-year tax deduction;
- Time their donation for charitable support during their lifetime;
- Minimize estate tax implications
With careful planning, the contribution of art to a donor-advised fund may provide support for a donor's charitable targets by freeing up funds to support charitable causes over time and ensuring that charities receive the most proceeds possible.
For collectors, the cost basis is what the collector has paid for the artwork. For those who inherit artwork, the cost basis is the fair market value of the art as of the date of the previous owner’s death. The maximum collectible capital gains tax rate is currently 28%. The Affordable Care Act layers an additional 3.8% Medicare surtax on top of unearned income. This brings the total tax consequence to 31.8%.
Artwork is generally considered capital gain property if it is held for longer than one year and the cost basis is typically the purchase price. For those that inherent artwork, the cost basis is stepped up to the fair market value as of the date of the previous owner’s death. If the artwork is donated shortly after inheritance, the cost basis could be the same as the fair market value on the date of donation. Inherited capital gain property is considered a long-term gain asset regardless of the holding period.
Help the community
Your art donation will have a significant effect on people’s lives, countless global causes require support and the appreciation that they exude and the impact and influence need to be seen to believe. Your generous artwork donation can transmit emotions such as joy, relief, and happiness to those who are less fortunate. Any piece of artwork or even an entire art collection which you donate to the Giving Center helps.
Giving Center’s dedicated team has years of combined experience in accepting and utilizing all types of collectibles: antiques, celebrity memorabilia, classic cars, coins, comic books, jewelry, and much more.
Visit the Giving Center to learn more about how you can make a difference.
