Depending on the sale, you will likely owe money.
Did you inherit a piece of art?
Did this artwork increase in value from the date you inherited it?
Are you going to sell it?
If so, you could owe a pretty hefty capital gains tax.
You are not alone.
According to a recent Bloomberg article titled “Trust Planning Key To Recent $85 Million Basquiat Legacy,” Lise Wilks will come face-to-face with this reality.
Wilks inherited a Basquiat painting from her parents, who both died in 2009.
She sold it for $85 million.
With the commission to the seller, the purchase totals $110.5 million.
This set a record for the highest selling Basquiat.
It also proved to be quite a significant gain.
How much could she owe?
She may owe about $37 million.
How was this calculated?
The federal capital gains tax is 28 percent on collectibles.
There is also a 3.8 percent levy on investment income for top earners.
Finally, the State of New York added another 12 percent tax.
It should be noted this is not the concrete final number.
The cost basis is specifically determined by a few factors—the value of the work in the year her parents died (2009) and whether it was gift or passed through their estate.
What steps can you take to decrease the taxes on a sale of art?
Deferring capital gains taxes.
If you are an art collector, you can defer the tax.
Using a Section 1031 exchange.
You would use the capital gains to purchase more art.
You will need provide documentation to confirm that you are an "investor" in artwork.
You can make a donation during the year of the sale to offset capital gains.
This can also be carried forward from prior years.
You can donate art to a museum, or you could donate money to a charity.
If art, your deduction is calculated based on the appraised value.
If cash, you can donate to public charities to offset up to half of your income.
For some private foundations, the limit is 30 percent or less—depending on your income.
It appears philanthropy is a tool used by Wilk with her foundation reporting $3.5 million in assets and distributions of $301,650 in grants and gifts as of July 2015.
Reference: Bloomberg (June 12, 2017) “Trust Planning Key To Recent $85 Million Basquiat Legacy”