Art as an Investment - Post 2
December 07, 2016
By Mitchell Blas
EisnerAmper partner Barbara Taibi moderated a panel on art as an investment, featuring panelists Ralph E. Lerner, Esq., President, Art World Advisors, LLC; Michael P. Schulhof, Chairman, GTI Holdings; and Elizabeth von Habsburg, Managing Director, Winston Art Group.
Michael started out the session by distinguishing between the ‘types’ of people you meet in the art world:
- Investors – People who buy art with the intention of making a profit from the eventual sale – A Trader mentality
- Collectors – People who buy art primarily for personal enjoyment – Intrinsic love of the works of art and people who love living with art
- Dealers – People who buy and sell art as a business
He suggested that, if interested, start buying art when you are young if possible. The best way to get involved is to start following artists at early stages whose work you like and watch them develop.
Liz indicated that the art market remains very strong in the U.S. New markets are strengthening with the Chinese and Qataris.
Ralph indicated that 95% of art has no real resale value; and illustrated his point with a story about how easy it is to be duped into buying fakes.
All the panelists discussed why they do not rely much on efforts within the art industry to standardize the valuation and appraisal process with matrices or indices to value art. They all feel the value of art is too subjective to rely on any such standards.. They do rely on research, authentication (aka provenance), and appraised values from reputable appraisers.
Regarding tax considerations, Ralph mentioned that the IRS has a panel of professionals from museums, auction houses, etc. that meets twice per year to help make determinations about valuations, etc. He said that this tends to elongate the process and further stated that, based on a Rev Proc that is binding on the IRS, not the taxpayer, a ruling can take no longer than 6 months.
The panelists also touched upon a few more points of interest:
- For investors, getting a capital gain treatment is an objective and that various techniques such as 1031 exchanges help to establish art as investment.
- People often do not realize that there is a use tax (similar to a sales tax or VAT) on the purchase of art.
- People often do not insure to avoid disclosure to the IRS, especially if they are trying to get as small an estate value as possible. One insurance technique is the use of an insurance Global Cap on a group of art assets.
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