Tax-Efficient Planning Strategies for Art Collectors by Lewis Kevelson, CPA

Posted on January 09, 2020 by Lewis Kevelson

Art collectors who accumulate artwork over their lifetimes tend to have limited interest in selling any of the pieces in their collections, according to a recent study conducted by UBS. Instead, most collectors develop an emotional attachment to the artwork they acquire and prefer to display their collections in their homes for their own personal enjoyment. When this is the case, collectors may not consider what will become of their collections after they pass away or how those pieces will impact their taxable estates and family members after death. Absent any advance planning, an art collection will become a part of a decedent’s estate, at which time, it may be subject to significant estate taxes and forced sales to raise cash needed to settle IRS and other debt obligations. Moreover, heirs may not have the same attraction to or passion for the art as the original collector.

The changes to U.S. income and estate taxes brought about by the Tax Cuts and Jobs Act (TCJA) in 2017 have required taxpayers to rethink existing strategies for wealth preservation and tax efficiency, especially for high-net-worth collectors who spent significant time and dollars amassing collections of highly valuable art and other appreciable assets, including classic cars and vintage wines.

On the positive side, the new law nearly doubles the federal estate & gift tax exemption, which allows individual taxpayers to exclude up to $11.58 million from a 40 percent estate and gift tax in 2020. With some general planning, married couples can exclude up to $23.16 from estate and gift tax in 2020. However, this favorable provision of the law is set to expire by 2026, at which time the estate and gift exemption will return to its pre-2018 level of $5.49 million.

Proceeds from sales of artwork held for one year or more continue to be subject to long-term capital gains tax at a rate of 28 percent, plus a 3.8 percent surtax on net investment income (NII). Art held for less than one year is subject to income tax at the taxpayer’s ordinary income rate plus the 3.8 NII tax, which can result in a total top rate of 40.8 percent.

Tax-Efficient Planning for Art Collections

Although the higher gift and estate exemptions under the TCJA are set to expire in 2026, upcoming elections and future tax legislation can change this to an earlier date. Thus, tax-savvy collectors should be planning now to take advantage of the currently generous estate and gift exemptions.

Following are just some of the strategies collectors may want to consider in the current year to manage their collections and plan for passing those legacies onto future generations.

Planning for the orderly transfer of a collection takes significant time and resources under the guidance of experienced financial advisors and tax accountants. Moreover, it is critical that collectors communicate their wishes and plans to future generations so that the collection can be properly dealt with at the time of the collector’s passing.

About the Author: Lewis Kevelson, CPA, is a director with Berkowitz Pollack Brant’s International Tax practice, where he helps high-net-worth families, entrepreneurs and business owners structure transactions to comply with domestic and international tax matters while building and preserving wealth. He can be reached at the firm’s West Palm Beach, Fla., office at (561) 361-2050 or


Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.