Seize the Opportunity (Zone): Latest Tax Strategies for Owners of Art and Other High-Value Assets
Art has aesthetic value of incalculable importance, but it can also be a large – and growing – repository of wealth. Recent changes in federal tax law have altered dramatically some of the key strategies that can (and should) be used to manage a valuable and growing art collection, as well as other high-value tangible and intangible assets.
Art is categorized as a "collectible" and therefore is subject to a federal capital gains rate of 28%. Add in state income tax and the Net Investment Income Tax ("NIIT"), and the combined tax rate can be upwards of 40%, depending on the state of residence. Meanwhile, the famously illiquid nature of an art collection makes for a very challenging estate plan.
Before 2018, like-kind exchanges under Code Section 1031 were a viable strategy for upgrading an art collection while deferring tax, but that provision is no longer available. In its place, however, is a fascinating new tax benefit called a Qualified Opportunity Fund ("QOF"), which allows a taxpayer selling appreciated property to rollover the gain into a qualifying investment, which can include investments in real estate or in equity of a company located within a so-called "Opportunity Zone." Amazingly enough, it may even be possible to invest gain into a for-profit art museum located in an Opportunity Zone – in other words, sell art to buy other art.
The topics discussed at this Tax Briefing Seminar, held in Boston on October 24, 2018, included:
- An update on tax planning following the Tax Cuts and Jobs Act – what still works, what no longer works, and what could work for individuals with art collections and other high-value assets
- A review of the new Opportunity Zone legislation, and how it can benefit taxpayers with highly appreciated assets
- Gifting strategies for art collectors, including gifts of a fractional interest in the same piece of art over multiple years
- Tax planning for an estate with a large and (probably) illiquid art collection
- Use of a GRAT to turn highly volatile currencies into wealth for children
- The use of long-term (30-year) structured installment sale transactions to sell property and defer gain – do they really work?
- The for-profit art museum – is it an idea whose time has come?