A BOUTIQUE ADVISORY FIRM WITHIN A GLOBAL FIRM, THE BLUE RIDER GROUP FOCUSES ON SERVING PROMINENT COLLECTORS, ARTISTS, FOUNDATIONS, MUSEUMS, AND NON-PROFIT ORGANIZATIONS. THE BLUE RIDER GROUP PROVIDES FINANCIAL SERVICES TO THE INTERNATIONAL ART COMMUNITY. “WE WORK PRIMARILY WITH PROMINENT COLLECTORS, ARTISTS, FOUNDATIONS, MUSEUMS AND NON-PROFIT ORGANIZATIONS. OUR CORE FOCUS IS ASSET MANAGEMENT AND WE LEVERAGE AN OPEN ARCHITECTURE INVESTMENT PLATFORM TO CONSTRUCT CUSTOMIZED SOLUTIONS FOR EACH CLIENT.”
“IN ADDITION TO ADDRESSING OUR CLIENTS’ FINANCIAL NEEDS, WE FACILITATE INTRODUCTIONS BETWEEN COLLECTORS, RAISE AWARENESS ABOUT ORGANIZATIONS AND HELP SUPPORT PROJECTS. WE ARE PASSIONATE ABOUT ART AND THE COMMUNITY OF PEOPLE INVOLVED IN MAKING, SUPPORTING, CURATING, ACQUIRING AND CARING FOR IT.”
ONE OF THE MANY RESPONSIBILITIES THE GROUP UNDERTAKES IS TO ADVICE COLLECTOR CLIENTS ON CHARITABLE CONTRIBUTIONS OF ART WORKS.
Getting A Charitable Contribution Deduction
In order to obtain a charitable contribution deduction equal to the fair market value of the work of art, the work must be donated to a public charity or private operating foundation, and the donor must anticipate that the charity’s use of the work will be “related” to its exempt purpose.
For example, a gift of a painting to a museum would clearly be a related-use gift. A gift of a work of art to a school with a museum, which uses it for art instruction, should also be a related- use gift. However, if the work of art is contributed, for example, to the local SPCA, which in turn just plans to sell the art, the amount of the deduction would be limited to basis, because the gift would not be related to the organization’s exempt purpose. It is important that you understand the future use of the artwork, because the nuances can affect the amount of the income tax deduction.
It’s also important to understand what type of property the artwork will be deemed to be for tax purposes. Generally, a work of art held by a collector is capital gain property and qualifies for deductibility at full fair market value, if it meets the related-use rule discussed above. The contribution is deductible up to 30% of adjusted gross income (AGI), with any excess contribution deductible over the following five years (limited to 30% of AGI) until exhausted. However, the art will be deemed to be ordinary income property, if (i) the donor created it, (ii) the donor received it as a gift from the creator, (iii) it is held as inventory by a dealer, or (iv) its sale would generate short-term capital gain because it was held for one year or less. If it is ordinary income property, the deduction is for cost basis only, up to a maximum of 50% of AGI.
IN AN ARTICLE IN WEALTH MANAGEMENT, A CAUTIONARY WORD OF ADVICE
Most major museums will reject a work of art unless it fills a gap in its permanent collection. For donated art collections, the likelihood of rejection is even higher. The art, alas, will be homeless, except if it’s a masterpiece.
To avoid this dilemma, fundraisers and their art advisors should work with donors in creating a realistic comprehensive plan. Those arrangements will ensure the acceptance of their donation by the charity of their choice, while offering them a fair market value tax deduction. Caveat Donor. “All gifts have to be unconditional,” according to Glenn D. Lowry, director of the Museum of Modern Art, before they will be considered for acceptance. This is standard practice for museums and charities alike.
Nonetheless, the fundraiser and art advisor can be valuable by explaining to donors the elements of the program. Those elements include the percentage of the charity’s collection on permanent display, the criteria for displaying works of art, if an endowment will be required with the donation, and the charity’s policy on selling art after it has been put to a related use.
Finally, donors should understand the importance of having an independent art advisor who represents their interests only, not those of museums, auction houses, dealers, or artists.
ALL THESE CAVEATS ARE IMPORTANT IN THE TRANSITION OF A WORK OF ART FROM THE PRIVATE COLLECTION TO THE PUBLIC SECTOR. BE WELL-ADVISED AT ALL TIMES AS THAT IS CRUCIAL IN YOUR DECISION-MAKING PROCESS.
THANK YOU AS ALWAYS FOR YOUR SUPPORT.
UNTIL NEXT TIME!