Tax Mitigation Strategies for Art Collectors and Investors – Part 2: Donating Artwork to Charity

Investing in artwork provides access to a number of potential tax advantages at the federal level. For collectors and investors who wish to donate pieces in their collections to charity, timing and structuring artwork donations strategically can offer substantial income, gift and estate tax savings. In this second part of our two-part series on tax mitigation strategies for art collectors and investors, we are covering some of the primary ways in which a Boston tax lawyer can assist with maximizing the tax benefits of donating artwork to charity.

Choosing a Charitable Organization

First, when donating artwork with the goal of achieving tax savings, it is necessary to choose a charitable organization with this specific goal in mind. Under the Internal Revenue Service’s “related use” rule, donors can only deduct the fair market value of an appreciated piece of artwork if they donate the work to a charity that uses artwork as part of its charitable purpose (i.e. a museum). If an investor or collector donates an appreciated work to any other type of charitable organization, then the federal tax deduction is limited to the investor’s or collector’s cost basis in the work.

Deciding Whether to Donate Artwork or Sell Artwork and Donate the Sale Proceeds

When considering a charitable donation of artwork for federal tax mitigation purposes, it is also worth considering what form of donation will achieve the greatest tax savings. In some cases, it will be most beneficial to donate the artwork itself; but, in others, selling the work and then donating the sale proceeds may offer a greater tax benefit. In some circumstances, art collectors and investors can achieve the most overall benefit by establishing a trust or foundation to hold and manage artwork or the proceeds from artwork sales.

Deciding When to Make a Charitable Donation of Artwork

Another important consideration for art collectors and investors involves when to make their charitable donations. Principally, this involves deciding whether to make a lifetime gift or bequeath artwork (or artwork sale proceeds) at the time of death.

Under the Internal Revenue Code, if the value of a person’s estate exceeds $11.58 million, then the estate is subject to a 40-percent federal tax. Making charitable donations during a person’s lifetime can help to reduce the overall value of his or her estate—thereby reducing or eliminating any estate tax that would otherwise be owed. However, there are planning strategies that can be utilized to mitigate or avoid estate tax liability with transfers at death as well; and, for many people, this will prove to be the more-desirable strategy.

Discuss Your Charitable Aspirations with a Boston Tax Lawyer at Thorn Law Group

If you have questions about how to achieve the greatest overall tax savings by donating artwork to a charitable organization, we encourage you to contact us for more information. To speak with Boston tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group in confidence, please call 617-692-2989, email ket@thornlawgroup.com, or inquire online today.