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When Is It Better to Donate Art Rather Than Sell It?

The Met. COURTESY WIKIPEDIA

The Met.

COURTESY WIKIPEDIA

Over in The Wall Street Journal today, Daniel Grant looks at when it’s better to give a work to a museum rather than sell it. He actually crunches the numbers on this, in a section I’ve excerpted below, and it’s well worth a read.

First, investors need to be aware of the difference, for their finances, between selling and donating. Peter Jason Riley, a certified public accountant in Newburyport, Mass., ran the numbers for a hypothetical U.S. taxpayer with an adjusted gross income of $500,000 who owns a painting appraised at $100,000 that she had purchased for $20,000.

What happens if she donates the painting? For donations of art, owners generally can claim a federal tax deduction of up to 30% of their adjusted gross income each year, making the limit in this case $150,000. So donating the painting to a qualifying museum would permit this owner a deduction in the current tax year of $100,000, assuming she hasn’t made other art donations totaling more than $50,000. (If donations in a given year exceed the limit for deductions, the overage can be deducted in following years, up to five if necessary, with the 30% limit applying each year.)

That means the tax benefit this year for the donor in this case would be $41,118, according to Mr. Riley.

If the painting was sold for the appraised value of $100,000, assuming a typical 15% sales commission to an auction house or art gallery, the seller would owe $31,372 in capital-gains tax, resulting in a net profit of $53,628, Mr. Riley says.

So the owner would end up $12,510 better off by selling than by donating. That doesn’t take into account the cost of an appraisal—typically $1,000 to $3,000—which isn’t always necessary for a sale but would be required in this case before the artwork was donated. The Internal Revenue Service requires an appraisal for donations of property over $20,000.

Read more at The Wall Street Journal.

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