Fine Art Charity Donations: One Way To Reduce Taxes

By Alexander Green, Investment Director of The Oxford Club
Friday, September 26, 2003: Issue #276

While generosity may be its own reward, it never hurts to save several thousand dollars in federal taxes in the process.

One way to reduce taxes and benefit a worthy charity is to take advantage of a gaping loophole in the Federal Tax Code, before the year is out.

I learned the details when I met with Mike Kuschmann, The Oxford Club’s recommended fine arts dealer and a Pillar One Partner.

Mike is the author of Investing in Fine Art and Making Money in the Art Market. Ordinarily, folks use his services to negotiate dealer prices on paintings, prints, sculptures and other items they may find in a gallery. (I bought a new home recently, and my walls are covered with beautiful pieces of fine art that Mike obtained very inexpensively.)

Still other folks are using his service to save thousands in federal taxes by making fine art charity donations. Here’s how…

Fair Market Valuations Can Get You Great Tax Reductions

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, people can deduct the charitable gift’s fair market value on their tax return without being subject to the dreaded alternative minimum tax.

If you think you don’t need to worry about the alternative minimum tax, you may need to think again. According to the Tax Policy Center, a research group, the alternative minimum tax is hitting 48% more households this year. Millions of Americans now qualify for this onerous tax.

But here’s a way to fight back

Since the passage of the 1995 Tax Act, Mike has been able to help people with unique charitable-giving advice. Occasionally, he is able to obtain deeply undervalued artworks (hand-signed, limited-edition serigraphs) that members can donate to their favorite charity at an appraised fair market value (which can be substantially higher than their cost). The net result is substantial tax savings.

This may sound like tax advice for tycoons only. But it’s not. You can acquire a whole portfolio of fine art and collectibles for a few thousand dollars – if you buy wholesale.

The IRS requires you to hold these items for one year in order to donate them at their fair market value. That means you need to act before the end of this year to benefit next year.

Some people display the artworks in their home or office. Of course, if you prefer, you can simply donate them to a local hospital or your old alma mater unframed.

Good investing,

Alexander Green

Today’s Investment U Cribsheet

• If you do not know an experienced art buyer, I would recommend Pillar One Partner Mike Kuschmann of Fine Arts Limited in Winter Park, FL. If you find a piece of art you’re interested in, definitely call Mike. On your behalf, he’ll probably beat the price you saw – sometimes by as much as 50% or more (especially if you saw it on vacation or at a “tourist trap” gallery). You can reach Mike at 800.229.4322 (toll free) or at 407.702.6638 to talk about a piece you’re looking at now, or just to ask for his free information pack.

• 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. It is a good store of value. 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. The index includes nearly 6,000 sales. To access it, visit http://www.MeiMosesFineArtIndex.org.

• Investing in Art: One Asset That Has Increased in Value Lately
• Tax-Managing Your Portfolio: 5 Steps to Cut Your Taxes, Plus 4 Tax-Break Options
• Tax Efficient Investing: How to Calculate Total Return and 4 Ways to Tax-Manage Your Investment Portfolio

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