Saturday, October 30, 2010

Uncertain Tax Outlook Clouds Collectors' Donation Decisions

From THE ART NEWSPAPER
Uncertain Tax Outlook Clouds Collectors' Donation Decisions
by Daniel Grant

NEW YORK—Many art collectors and wealthy individuals are facing remarkable uncertainty in the current federal estate and gift tax laws. Both the federal gift tax and the generation-skipping transfer tax, currently 35 percent, will rise to 55 percent next year in the absence of congressional action. "Everyone is waiting to see what, if anything, Congress will do. It's a weird year," said New York attorney Ralph Lerner, a leading art law specialist. However, he noted that even without an estate tax, donors to museums continue to receive an income tax deduction. For some, "2010 is a time of incredible opportunity for estate planning," said Catherine G. Schmidt, a lawyer and partner with Patterson Belknap Webb & Tyler, New York. The federal gift tax permits individuals to make gifts to their children ($13,000 per child, $26,000 per couple) throughout their lifetime up to $1million tax-free, while the generation-skipping tax allows gifts of up to $3.5million to grandchildren tax-free. Gifts larger than those amounts trigger a tax of 35 percent in 2010. "If you want to give more than $1million to your children, give it now while the gift tax rate is lower," Schmidt said.
Decisions are particularly tough for people trying to plan ahead, because Congress may write new limits for tax rates and exemption on estate property, potentially making the statute retroactive to the beginning of 2010 (a year in which there is no federal estate tax) and using 2009 rates (up to $3.5million tax-exempt, with the remainder taxable up to a maximum of 45 percent)—or, legislators may not be able to agree on anything, at which point estates in 2011 will again be taxed at 2002 rates (tax-exempt only up to $1million, with the rest taxable at 55 percent). It hasn't been an easy year for museums soliciting donations of money and objects from estates, since those estates haven't felt the pressure of the tax code to make charitable gifts. Peter Marzio, director of the Museum of Fine Arts, Houston, acknowledged that tax considerations play a part in when and how much donors give, noting that the museum's development staff regularly discusses planned-giving techniques, such as bequests, fractional gifts and remainder trusts, with prospective donors to create "an awareness of what might be in their best interest and in ours."

Among the pieces of legislation Congress has yet to take up is a bill introduced by Senator Charles Schumer (Dem., N.Y.) that would ease restrictions on fractional gifts, allowing donors to extend the period over which they could take deductions from the current 10 years and permitting the amount of the deduction to rise with the value of the artwork. Louis Grachos, director of the Albright-Knox Art Gallery, Buffalo, N.Y., said that with the current uncertainty about the law, donors "don't feel comfortable right now. I have heard from prospective donors who've said, ‘I don't know what I should do.' It's one more hurdle for museum directors." However, Terry Morello, vice-president for development at the Los Angeles County Museum of Art, said she has not seen "any resistance on the part of donors to give this year." She added that there have been no instances of family members reneging on a bequest. Dewey Blanton, spokesperson for the American Association of Museums, reported "somewhat mixed signals from the field. Some are concerned about the uncertainty surrounding the estate tax, others seem unaffected. Museums seem to be more concerned about the here and now, given the continuing struggles of the economy, and may be somewhat less focused on the long-term implications of this issue." He added that the AAM hopes that "Congress takes up the issue during the lame-duck session. In the meantime, AAM will continue to make the case for incentivizing charitable giving, through the estate tax and other methods."

Tax-free gifts from one generation to another may include art. Schmidt noted that gifts of tangible property like art must be reported to the Internal Revenue Service in tax filings, accompanied by a report from a qualified appraiser. "The objects actually have to be transferred from one person to another," she added. "A collector can't just keep it in his or her home and say that the painting now belongs to a grandchild, for instance. They need to sign over a deed of gift and physically transfer the artwork to the recipient." In the case of minors, who legally may not be able to own property, gifts would be held in trust until they reach majority.

Thursday, September 23, 2010

Valuing Art for Tax Purposes

More great information on whys and hows of Fine Art Appraisals for the IRS.

Valuing Art for Tax Purposes

Tuesday, September 14, 2010

Charitable Contributions

More about IRS rules for donating works of art:

1. All individual works of art or like items valued at $5,000 and above must be appraised. Works of art valued at $20,000 and above must have a copy of the appraisal report attached to the tax return.

2. The work of art must be owned for a minimum of one year to receive a deduction of the Fair Market Value. Otherwise the deduction is at cost basis.

3. The donation must be related to the purpose of the institution receiving it in order to get a deduction of the Fair Market Value otherwise it is at cost basis. You cannot donate a Warhol print to an educational institution and receive a deduction based on its Fair Market Value. If you donate it to an art museum then you can.

4. Fractional giving is when you donate a percentage of an artwork to an institution over a period of time. The value of the contribution is based on the initial date of contribution regardless of whether the value goes up in subsequent years. If the artwork declines in value, however, then your deduction is based on its reduced value.

Tuesday, July 27, 2010

IRS requirements for Charitable Donation appraisals - additional Guidance

The IRS has strict requirements for appraisals for Charitable Donation and has issued additional guidance for donations of art $20,000 and above - donations which generally are subject to review by the IRS's Art Advisory Board. This includes the requirement that a written appraisal be attached to the tax return and that 8"x10" color photographs of individual items appraised at $20,000 and above be included. Also required is the acquisition cost of the donated item as well as the source and date of acquisition. Click on the link below to find out more.

http://www.appraisalcourseassociates.com/archive/newsletter/update12/20000.htm

Monday, June 14, 2010

Chinese Art Market Leads the Way in Art Market Recovery

Halfway through 2010 we can say that the art markets are in recovery. Leading the way has been the Chinese art market which is being driven by the ever-growing demand and sophistication of private Mainland Chinese buyers. Not surprisingly, the taste of Chinese art buyers is shifting what is being offered at first-tier auction house like Sotheby’s, Christie’s and Bonhams. Important sales are now featuring 18th century decorative arts such as blue-and-white porcelain, white jade, and objects made of rhinocerous horn. Porcelains, jades, ivories and other items believed to have been produced in imperial workshops and with excellent provenance are especially favored, with those from the Qianlong period (1736-95) bringing the highest prices. Hong Kong and auctions in Mainland China are now the center of the Chinese art market and where the record prices are being set. This May China's Beijing Poly International Auction Co. set a record price for a Chinese work of art when a 15 meter long handscroll of calligraphy by Song master Huang Tingjian sold for RMB 436 million US$63.8 million. Chinese buyers are flocking to sales not only at auction houses in Hong Kong, New York, London and Paris but also to regional auction houses around the globe to chase artworks being sold from significant European collections. A recent example of this is a sale that took place at Woolley & Wallis in Great Britain where a pair of imperial jade elephants were sold for $1.23 million, 3-4 times estimate, and a white jade bell sold for $2.46 million. Eleven lots sold for over $100,000 and twenty-two lots for over $50,000.

Regional auction houses and chinese art market

While the Asian Art market reflects the general weakness of the global market, the Chinese art market remains strong due to the ever-growing demand and sophistication of private Mainland Chinese buyers. Not surprisingly, the taste of Chinese art buyers is shifting what is being offered at first-tier auction house like Sotheby’s, Christie’s and Bonham's. Important sales are now featuring 18th century decorative arts such as blue-and-white porcelain, white jade, objects made of rhinocerous horn, with excellent provenance and produced in imperial workshops. Objects of the Qianlong period (1736-95) continue to bring in the highest prices. Hong Kong and auctions in Mainland China are now the center of the Chinese art market. However, Chinese buyers are flocking to sales not only at first-tier auction houses but also regional auction houses around the globe to chase desirable artworks being sold from significant European collections. A recent example of this is a sale at Woolley & Wallis in Great Britain where pair of imperial jade elephants were sold for $1.23 million, 3-4 times estimate and a white jade bell sold for $2.46 million. Eleven lots sold for over $100,000 and twenty-two lots sold for over $50,000.

Monday, January 11, 2010

Chinese art market remains strong

The Economist Magazine has recently published two interesting articles on the Asian art market based on recent sales in Hong Kong and Paris. The first point is that while the overall Asian Art market reflects the general weakness of the global art market, the Chinese art market is an exception. Sales remain strong due to the ever-growing demand and sophistication of private Mainland Chinese buyers. However, the markets for Japanese and Korean works of art continue to be dominated by Western collectors. This small and highly specialised group tend to buy through dealers rather than at auction. At a recent sale of Japanese art at Christie’s in Paris nearly 60% of the 125 lots failed to sell. The bought-in rate of Korean works was even worse, at well over 70%. In stark contrast, Chinese art at Paris sales had a bought in rate of only 20-30% at Sotheby’s and Christie’s with approximately 70% selling above the pre-auction high estimate! Not surprisingly, the taste of Chinese art buyers is shifting what is being offered by Sotheby’s, Christie’s and Bonhams. Important sales are now featuring 18th century decorative arts (blue-and-white porcelain, white jade, objects made of rhinocerous horn) with excellent provenance (the better to avoid the notorious fakes) from imperial workshops. Objects of the glorious Qianlong period (1736-95) continue to bring in the highest prices. Chinese buyers are flocking to Paris sales because there are still significant European collections coming up at auction. Aside from taste, Chinese buyers are highly motivated to repatriate imperial objects that in many cases had been looted by imperialist powers during the late 19th to early 20th century.