Investing In Art: How to Make a Fortune and Save Money on Your Taxes
Monday, October 22, 2007: Issue #722
Generosity is its own reward. But it never hurts to save a few thousand dollars in federal taxes in the process.
You can do that – benefit a worthy charity and slice your federal tax bill – by taking advantage of a little-known incentive in the Federal Tax Code before the year is out.
This particular approach is recommended by Mike Kuschmann, President of Fine Arts Limited.
Fine Arts does not have a gallery of artwork to sell. (The company doesn’t even have a gallery.) Instead, Mike works as a “buyer’s broker.” If you see a painting, print, sculpture or other item in a gallery that you’re visiting – no matter where you are – don’t pay retail.
Contact Fine Arts – the number is below – and Mike will negotiate a dealer price on the item.
Mike has over three decades of success doing this. He is also the author of Investing in Fine Art and Making Money in the Art Market.
Ten years ago, my Investment U colleague Mark Skousen asked Mike to find him a rare first-edition copy of Adam’s Smith’s classic “Wealth of Nation’s.” Through his network, Mike located one in a gallery in Tokyo. Mark says the book has soared in value – and is worth over a quarter- million dollars today.
But can you invest in art and save thousands in federal taxes, too? Yes, here’s how.
Investing in Art Saves Tax Dollars
The 1995 Tax Act allows you to donate to any IRS-approved charity works of art at their fair market value, not at their cost basis. Moreover, you can deduct the charitable gift’s fair market value on your return without being subject to the dreaded alternative minimum tax.
(If you don’t worry about the alternative minimum tax, you may need to think again. According to the Tax Policy Center, a research group, millions of Americans now qualify for this onerous tax.)
As Mike explains, “I work closely with published artists and sometimes acquire limited edition prints or serigraphs at a substantial discount to the current market value. Clients of mine purchase them far below their published cost – often for just a few thousand dollars – and later donated them to a local hospital or university at fair market value, allowing them to save thousands of dollars in federal taxes.”
The IRS requires you to hold these items for one year in order to donate them at their fair market value. And, of course, you may decide to just keep them.
But, if you prefer, you can donate them to a local hospital or your old alma mater – and get a tax deduction for the charitable contribution.
For more information, feel free to contact Mike Kuschman at 800.229.4322 or 407.702.6638. He’ll send you a complimentary brochure pack, detailing his services and the tax savings available.
Over the next few weeks, I’ll be highlighting several other year-end tips for reducing your federal tax liabilities.
Because it’s not how much you make… it’s how much you keep.
Good Investing,
Alex
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Today’s Investment U Crib Sheet
Some fine art can be valuable as an investment, even if you don’t eventually use it for tax relief. According to NYU professors Jianping Mei and Michael Moses – using figures from the 27 recessions dating all the way back to 1875 – fine art holds up very well in bad times. Mei and Moses created the Mei/Moses Fine Art Index using data on repeat sales of fine art auctions from Sotheby’s and Christie’s. And over the last five years, the index has significantly outperformed stocks. Although artwork has a higher volatility and lower liquidity than most other financial assets, it also has a low correlation with other assets and may play a role in portfolio diversification.
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