Investing in artwork is a wonderful way to make money over a long period of time. You may have found an artist who has created beautiful work and you would like to invest into their pieces. Over time, these pieces may be worth a lot of money, and this can provide a lot of monetary value to those who purchased the original work. There is also a myriad of tax benefits that come with investing into this particular venue. Understanding what these advantages are and how you can make use of them will make all the difference in finding suitable options.
Artist Resale Rights
In a good majority of countries around the world, the original creator of a piece was entitled to rights upon the resale of their work. This simply means that the investor had to continually give back a portion of their earnings in place of these constitutional rights. However, in the United States, this law was repealed in 2012, allowing buyers to do what they want once they paid the original creator for their work. Because of this, you do not have to worry about continually giving a percentage of your sales to the designer. It is important to note that there are new laws being considered to reinstate this right.
Variables Depending on State
The amount in tax that you pay for a piece of art will depend on the state that you’re living in. For individuals living in New York City, they will pay roughly 8.875 percent sales tax when purchasing any type of art from a designer. However, in states like New Hampshire, Delaware, Oregon and Montana, there is absolutely no sales tax that needs to be paid. For this reason, many investors are choosing to work exclusively with artists in these areas. You will save a significant amount of money on your purchases and have all rights to use the work as you wish.
What to Know About Capital Gains
Capital gains tax is the income generated on the actual sale of all assets that have increased in value after the original purchase date. This is applicable only for artwork that has had a year between its purchase and resale, otherwise you will be subject to pay income tax on what you were able to earn. The key here is to allow the piece to appreciate in value and to avoid trying to sell it off within a year of the original purchase date. You can use a variety of tax tools and resources to figure out which filing option is best for you.
Available Deductions
In America, there are numerous laws that advocate for the patronage of artwork. As a result, individuals who invest into local artists can receive a number of different deductions as a result of this support. If these pieces are then donated to foundations and other nonprofit organizations, you may be able to use this as a deduction on your tax forms. Most charitable donations are eligible for a 30 percent tax deduction, which can be helpful when increasing or improving your annual returns.