Tax Tactic of the Ultra-Wealthy: Split the Masterpiece in Two
Fractional donations are gaining popularity with collectors who want financial benefits while still enjoying their fine works.
For billionaire art lovers, the Rothko, Basquiat or Banksy hanging in the front hall can be a source of pride and joy. It’s also a great way to get a tax break.
Lawyers, already scrambling to help clients prepare for tax changes in Washington that threaten to soak the rich, say they’re increasingly getting requests from art collectors to find strategies to shield their wealth from the Internal Revenue Service. The solution: giving away just a fraction of their ownership.
It’s an opportunity to get a tax benefit tied to surging art values without donating a painting outright. In a typical arrangement, the piece goes back and forth between the donor and a museum, like divorced parents sharing custody of their kids. The owner gets an income-tax deduction based on the fair market value, potentially giving away more slices over time, for as long as 10 years. The art then goes to the charity for good.
While fractional donations aren’t new, lawyers and tax advisers say they’re growing in popularity as values climb and the Covid-19 pandemic leads to shifts in where people live. It’s particularly suitable for those who’ve decided to split their time between New York and tax-friendly Florida, leaving behind empty Park Avenue penthouses for part of the year, according to John Mezzanotte, managing partner in the Greenwich, Connecticut, office of accounting and tax-advisory firm Marcum.
“If you’re dividing time between two places, you won’t even miss the art,” said Mezzanotte, who has helped clients arrange fractional gifts.