Is Artwork a Good Investment?
By Alan Olsen
If you collect rare and expensive art then chances
are your collection is one of your most prized possessions. There are all kinds
collectors, including those who collect for a hobby,
those who use their collection
as a business
and others who collect art as an investment.
Therefore, if you have an art collection
then you have a lot of options as to what you do with it. However, using art as an investment
can be a slippery slope. Collecting art as a hobby
is, for the most part, very simple. Using an art collection
strictly for business
is fairly straightforward as well. Investing in art,
on the other hand, can be very tricky.
Always Consider the Market
One of the first things to consider is the overall art market. While
it might seem that artwork
is bought and sold at a constant pace, the fact is according to some art market experts
less than 1 percent of all paintings purchased end up being resold. So even
though you can use art
as an investment, be aware that the market
is relatively small across the board. If you do have a piece that is likely to
attract a nice payday then your best bet for selling it is to go through a fine
house. These auction houses will charge you a seller’s fee, but they are also
more likely to attract wealthy
buyers than the do-it-yourself online auctions.
Art Is a Long-Term Investment
Another important thing to keep in mind is that in almost
all cases, art is an
investment that takes time. Rarely can you purchase a piece of artwork and quickly
turn around and sell it for a big increase. That means if you’re considering investing in art be prepared to
hold onto it for a while before it makes any real gains. The market
also tends to fluctuate a lot as the economy moves up and down. When things are
good artwork and
other collectibles are more likely to fetch higher dollar returns. On the flip
side, when times are tough the value of these types of assets tends to decline.
The Tax Side of the Equation
Of course, as with any investment, you
will also need to consider the tax implications
of investing in art.
implications between someone who invests in art and someone who
collects art can
be substantial. The main difference between the two is that an investor
with the purpose of profiting on it in the future. In any case, both collectors
and investors must pay capital
gains tax on any profit they make from their collection. If you’ve owned
the art for more
than a year it will be taxed at
rate of 28 percent. If you sell it within less than a year of first owning it then
the profit is subject to the same rate as your other income.
Deductions and Losses for Investors
One more note: investors do
have an advantage over collectors when it comes to deductions as they can
deduct more of their related expenses than hobbyist.
Also, if your art
investment losses exceed your gains
then you can use those losses
to offset other capital
gains from your other investments.