What is collectible art?
Artwork owned by a collector or inherited and held for more than one year and has appreciated in value qualifies as a “collectible” under the Internal Revenue Code and is considered a capital asset. When sold by the owner, capital gains tax is owed on the difference between the current fair market value and the owner’s cost basis. If prior to sale, the owner donates appreciated artwork to a charity such as Collectibles with Causes, the collector can potentially eliminate the capital gains tax that would be incurred in a sale resulting in more to give to charity.
Philanthropically minded art collectors can receive a tax benefit when they donate art to charity. Collectible with Causes is a part of a 501(c)(3) charity that can provide collectors with the ability to 1) potentially eliminate capital gains tax on the sale of the art; 2) take a same-year tax deduction; 3) time their donation for charitable support during their lifetime; and 4) minimize estate tax implications.
With attentive planning, the contribution of art to a donor-advised fund may provide support for a collector’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%.
Receive a federal income tax deduction
When you donate artwork to charity, you may receive a current year charitable income tax deduction dependent on the “related use” rule if you itemize. If the art is donated to a charity, that does not use art as part of its charitable purpose, collectors can deduct the lesser of cost basis or fair market value up to 50% of their adjusted gross income (AGI) and can carry the deduction forward for up to five years.
Artwork is generally considered capital gain property if it is held for longer than one year and cost basis is typically the purchase price. For inheritors, 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 peoples lives, countless global causes require support and the appreciation that they exude and the impact and influence needs to be seen to believe. Your 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 Collectibles with Causes helps.
