Taxing Inherited Artwork

Taxing Inherited Artwork
If you inherit valuable art, you’re likely to benefit from an estate tax provision that allows you to avoid tax on inherited assets that appreciated in value before your benefactor’s death. Fortunately for you, regarding income taxes, your basis increased to the value of the art on the date of death.  The decedent’s cost is irrelevant.  For example, if the art is worth $100,000 when you inherited it and you sell it for $100,500, you owe tax on the $500 gain.  And you qualify for favorable long-term capital gain rates if you hold the art longer than a year.  Be sure to obtain and independent appraisal of the current worth.
 
Capital Gain rates are based on income
A top rate of 15% applies to qualified dividends and the sale of most appreciated assets held over one year (28% for collectibles and 25% for depreciation recapture) for single filers with taxable income up to $415,050 ($466,950 for married filing jointly). Long-term capital gains or qualified dividend income over that threshold are now taxed at a rate of 20%.
 
EXAMPLE: If a married couple already has $466,950 of taxable income and an additional $100,000 in long-term capital gains and qualified dividends, the entire $100,000 would be subject to the 20% rate. If, however, they only had $400,000 of taxable income and $100,000 in long-term capital gains and qualified dividends, then $66,950 of the additional amount would be taxed at 15% and $33,050 would be taxed at 20%.


Charles Schwab, January 2016
 
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