Investment Art

I recently went out with a bunch of my artist friends and the talk turned to some billionaire heiress who purchased a plastic toilet seat piece of art for $2 million dollars as an investment. Now I couldn’t authenticate the $2 million toilet seat story for this blog post, but we sure did have a lively conversation contemplating what someone would do with a $2 million piece of toilet seat art.

 

Since I’m an accountant, not an artist, I couldn’t help but think about the tax implications of that investment. (Yes, I’m that big of a geek.)

 

I love to buy art.  Although I wouldn’t count any of my purchases as “investments”, the gallery owners and auctioneers will often talk about the investment quality of a purchase.  One of my favorite art stories happened to a former employer of mine who really did purchase a piece of art as an investment.

 

I’m going to call him Fred for this story. (I’m changing his name to protect the innocent. Fred‘s basically a good guy.) Anyway, Fred had been talked into purchasing a $10,000 piece of investment art at a gallery while he was on a trip. It was a large piece; 3 feet high and 6 feet wide.

 

The gallery owner told Fred that it was by a “breakout” artist and this was going to be his signature piece. He also said that the artist was old and would probably die soon and the value of the art piece would go up substantially when the artist died. The gallery owner called it a great “investment piece.”

 

So Fred bought the art and somehow it wound up in my office. “Wow,” I hear you say, “You must have been really important to get a $10,000 piece of art in your office!” Sadly, that’s the wrong assumption. You see, this $10,000 piece of investment art was butt ugly. Fred hated it; he only bought it because he thought it was a good investment.  I was awarded the art on my wall because I was the lowest ranking person with wall space big enough for it to fit on.  Did I mention it was ugly?

 

So I got the art on my wall, and Fred waited for the art to appreciate so he could sell it and get rid of it. Sadly, the artist wasn’t gaining fame at the rapid rate that the gallery owner had implied. And apparently, the artist wasn’t as close to death as was implied either. (And let’s be real, isn’t it kind of morbid to make an investment based on the idea that somebody’s going to die and their art value will go up because they’re dead?)

 

I left the company long before the art appreciated.  But who knows?  Fred did have a knack for making money and I wouldn’t be surprised if that art did go up in value.

 

So how does that work if it does?  Let’s say Fred’s painting is now worth $50,000 and he wants to sell it.  Collectible art is taxed at the 28% tax rate.  If Fred just sold the painting directly to a buyer himself, he’d pay tax on $40,000—that’s the $50,000 he made less the $10,000 he paid for the art in the first place.

 

Most likely, he’d use a gallery or auction house to sell the painting and they’d take a commission.  The commission would be deductible as well.  So if the gallery charged a $15,000 commission, then Fred would pay 28% on $25,000  ($50,000 less the $15,000 less the $10,000.)

 

Purchasing art as an investment has its ups and downs.  It can be very risky—like Fred’s piece, or very rewarding—like the woman who purchased a Renoir for $7 at a flea market.  http://www.timesdispatch.com/news/local/article_f88cd6ec-80f2-591f-b8cf-0effeccca114.html

 

I vote for purchasing art you like.  That way, you get to be around beautiful things you like to be around.  If it happens to become more valuable, great.  If not, you have beautiful things you like to be around—and that’s a winning investment.