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Art & Taxes

Three bills currently making their way through the Congressional committee process would have major impacts on the tax consequences for those selling or donating fine art and collectibles.

The Artist-Museum Partnership Act (S.548), introduced by Senator Patrick Leahy (D-VT) would "amend the Internal Revenue Code of 1986 to provide that a deduction equal to fair market value shall be allowed for charitable contributions of literary, musical, artistic, or scholarly compositions created by the donor." Under the current law, created as part of the Tax Reform Act of 1969, artists who donate their works to non-profits are only able to deduct the literal cost of supplies, canvas, paint, etc. For successful living artists whose works have a clear and thriving market, the current law has had a chilling effect on charitable donations. Leahy cites Igor Stravinsky, who changed his mind about donating his papers to the Library of Congress when the current law took effect. Instead he sold them to a private foundation in Switzerland. Leahy has garnered a great amount of bipartisan support in the form of thirty co-sponsors, including both Senators Barack Obama (D-IL) and Hillary Clinton (D-NY).

The Art and Collectibles Capital Gains Tax Treatment Parity Act (S. 374) sponsored by Senator Pete Domenici (R-NM) and Charles Schumer (D-NY) would "provide the same capital gains treatment for art and collectibles as for other investment property." Currently the capital gains tax rate for art and collectibles is 28%, compared to 15% for other types of investments. As fine art and collectibles have emerged of late as a powerful alternative asset class, the Art Dealers Association of America and many auction houses support this legislation. Some fear, if the bill passes and the capital gains tax is lowered on sales of art and collectibles, donations to museums would diminish. The bill also includes language comparable to Leahy's regarding raising the write-off for artist donations to fair market value level.

The Promotion of Artistic Giving Act (H.R. 3881) sponsored by Representatives Tom Udall (D-NM) and Phil English (R-PA) would repeal changes made in the Pension Protection Act of 2006 concerning fractional charitable donations. (See Changes in Charitable Donation Rules in the January/February 2008 edition of this newsletter). This bill would return the write-off of each gifted fraction of a work of art to its pro-rated fair market value at the time of each donation. The PPA had frozen the basis to the lesser of the FMV at the time of the first fractional donation or the FMV at the time of each subsequent fractional gift. As a result, in today's rising art market, the standing PPA legislation significantly lowered the allowed deduction, and causes a chilling effect on fractional charitable gifts, a common source of museum acquisitions.

Find summaries and full texts of these bills, and follow their progress through Capital Hill on .

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