What Happens When Art Becomes Another Asset?
First, the taxman gets suspicious; then you start borrowing against it.
First the government changes the tax rules: Yesterday’s Wall Street Journal gave us this insight into the tax strategies of collectors:
Besides tax planning, the fractional-gift strategy provided collectors an additional advantage: It allowed them to park their art in a museum for part of the year, then bring it home to enjoy for the remaining months, depending on the deal they negotiated. They could also claim increasingly larger deductions as the artwork appreciated over time, before the museum eventually took sole possession.
Here’s how it worked: The donor would take a deduction based on the first contributed stake — say, $4,000 for donating a third of a $12,000 painting. If the collector donated another one-third stake later, and the $12,000 painting had appreciated to $30,000, the next deduction would be $10,000. The donor could continue to take advantage of this until he gave away the entire interest in the artwork, and he could take as many years as he wished to do so.
Measures passed as part of a 2006 pension-reform law limited that sweet deal. Sen. Grassley has said that he led the charge for stricter rules after reading an article on the topic in The Wall Street Journal, alarmed that donors were taking bigger and bigger deductions while still keeping the donated artwork on their walls much of the time.
Then you start using your art for a little leverage as the NY Sun’s Kate Taylor makes clear in her excellent article:
“Art now is seen as a definite asset class which is traded,” Christie’s international commercial director, Caroline Sayan, said. “People are looking at their complete portfolios and thinking about how they can leverage what they have more effectively.”
“If you have $100 million on your walls, that’s equity you want access to,” an art lawyer, Ralph Lerner, said
Portrait of Art as a Tax Deduction (Wall Street Journal)