There’s a lot of money involved in art, and the tax code works to keep the money in art. It turns out that when you hear about a sale of art at a high price, the art wasn’t really sold. It was exchanged for other art so that the “seller” doesn’t have to pay capital gains taxes on the appreciation of the art he transferred away. Deductions for donations of art to museums also are a good way to turn art into cash. Read some details here.
Carlos Rivera, a founder of ArtRank, a website that maintains “buy” and “sell” recommendations on emerging artists, said he’s involved in at least one 1031 exchange a month. One client sold a 1980s Frank Stella relief painting and bought 17 works by 11 emerging artists, including Oscar Murillo, Korakrit Arunanondchai, Jamian Juliano-Villani and David Ostrowski.
Another client took advantage of surging prices for Murillo by selling a 2012 painting for $375,000, he said. Instead of paying tax on $345,000 in capital gains, he rolled the proceeds into more art, including works by Franz West and Jonas Wood, Rivera said.
Edlis, the Chicago collector, said he used the proceeds from the sale of “Turquoise Marilyn” to buy more art, including “Figure 4,” a 1959 painting by Jasper Johns, for $17.4 million. In 2009, “Turquoise Marilyn” was included in a loan exhibition of Cohen’s collection at Sotheby’s.