Word: taxed
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...Impressionists and Pop Art. Today a new generation of hedge-fund billionaires and Chinese and Russian kleptocrats is part of an ocean of capital flowing into galleries and auction houses. "There seem to be no limits to what people will pay, and in every kind of art," says art-tax specialist Ralph Lerner, whose clients include some of the country's biggest collectors...
...only glum faces in the art world belong to museum directors, who because of a new tax law may have a harder time obtaining these treasures. Tucked into the Pension Protection Act, which President Bush signed into law in August, the law imposes stricter limits on the popularly used method by which art collectors donate their works to museums. In the past, collectors would often hand over partial ownership of a painting--usually from 10% to 20%--and take a tax deduction for an equivalent percentage of the appraised value. The write-off on subsequent donations could rise each time...
...Clark, deputy general counsel for the Museum of Modern Art in New York City, where roughly 650 works of art have been acquired via fractional giving, with about 650 more on the way--including Henri Matisse's Plum Blossoms. "It encourages art collectors to give because they get a tax benefit, but it also encourages donors to be prudent stewards of important...
Already the new tax law is disrupting the traffic between donors and museums. That's in part because it requires a museum to take possession of a piece of donated art within 10 years, not merely for a specific number of days each year, as under the present arrangement. And now donors' write-offs are limited to a painting's market value at the time the original gift was given, not its appreciated value. That may end up being a significant disincentive for giving. While the law's intent is to prevent donors from reaping tax breaks on art that...
Museum officials, who are lobbying to have the tax provision withdrawn, say they're already getting the cold shoulder from potential donors. "There have been donors in negotiations who pull back immediately," says James K. Ballinger, director of the Phoenix Art Museum, which obtained two Georgia O'Keeffe paintings through fractional giving. Lerner says he's advising clients to hold off on donations and has pulled the plug on a $20 million painting. "I don't go through a long explanation. I just tell the client, 'You can't do this any longer,'" he says. "They say, 'Fine...