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Art Sale

Technical topics regarding tax preparation.
#1
Bell  
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90 year old client is selling her paintings and all the proceeds will be given to a charity. How does this play out on her tax return. She will write a check to the charity and they will give her a receipt. The charity is not in anyway involved with this sale. She is doing it on her own. Income from the sale less expenses and then a donation on schedule A? Not sure about this.
 

#2
EZTAX  
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Why not have buyers write checks out directly to the charity? Sort of like her donating paintings to charity and they are selling them?
 

#3
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Is the gain from the sale of the art going to be ordinary income or capital gain? Is the client the artist?
 

#4
Frankly  
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Is the charity an art museum?
 

#5
Bell  
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Charity is a medical foundation doing research for parkinsons. The client is the artist. She has never sold any of her paintings. Family members are not interested and she wants to do some good with them. If the buyers make out the checks to the charity, she would not have to report the income and come out better. I had not thought of that. Good thought EZTAX.
 

#6
Bell  
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Some would be short term or ordinary income. She has been painting up a storm. Other's long term. This would be hard to keep track of. I like the idea of the checks being written directly to the charity.
 

#7
Frankly  
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Bell wrote: If the buyers make out the checks to the charity, she would not have to report the income and come out better.

That's an interesting thought, and a little research into that idea might be worth the time. Were the paintings donated to the charity and she is acting as an agent in selling them? Did she donate all her paintings, or only the ones that happen to sell?
Or, is she merely saving the effort of writing a donation check to the charity post sale and attempting to avoid recognizing income from the sale of her work?

In any case, her basis in the painting is the cost of canvas, paint, and brush. And there is no charitable contribution by the buyer writing a check even if written to the charity.
 

#8
Chay  
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Frankly wrote:is she merely saving the effort of writing a donation check to the charity post sale and attempting to avoid recognizing income from the sale of her work?

In order for the answer to be "no" here, I would say she needs receive a letter from the organization documenting her gift and the arrangement they have in place whereby she will sell the paintings as an agent for the organization.

Tax-wise, this would be the best solution unless the taxpayer needs to raise her AGI for some unrelated reason.
 

#9
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Caveat donor (and donor's tax advisor): Please beware of IRC Section 1221, which defines what is, and what isn't, a capital asset:
For purposes of this subtitle, the term “capital asset” means property held by the taxpayer ... but does not include
...(3) a patent, invention, model or design (whether or not patented), a secret formula or process, a copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property, held by a taxpayer whose personal efforts created such property... [emphases added]

This might have repercussions in the amount of a charitable deduction that the artist/owner/taxpayer/donor might be able to claim under IRC Section 170.
:(
 

#10
Frankly  
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Harry Boscoe wrote:This might have repercussions in the amount of a charitable deduction that the artist/owner/taxpayer/donor might be able to claim under IRC Section 170.

Meaning that Millet can't deduct the FMV of "Man With a Hoe", nor can the old lady deduct the selling price of her paintings. Both can deduct their cost of canvas and paint.

Chay wrote:In order for the answer to be "no" here, I would say she needs receive a letter from the organization documenting her gift and the arrangement they have in place whereby she will sell the paintings as an agent for the organization.

Tax-wise, this would be the best solution unless the taxpayer needs to raise her AGI for some unrelated reason.

Another best solution would be for the old lady to donate her paintings direct to the charitable org and let them do the selling, plus she gets a deduction for all the paintings even if some of them don't sell.
 

#11
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"...plus she gets a deduction for her tax basis in all the paintings." ;)
 


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