Do you revel in the prospect of starting the New Year only to have your renewed optimism quickly dashed at the thought of tax time? Yes, it’s tax time and you may not realize it but investing in art and donating could be the perfect vehicle for your long term investing strategy. If you were unable to invest in 2012, make art investing in 2013 your goal.

Stock-MarketIf you think you’re not in the art investing “league” you might want to reconsider. Some statistics from Artprice: “some 70% of artwork sold at auction between January 2008 and June 2009 was priced at $5000 or less. During that same period affordable art in this price range gained 60% in value, while higher end pieces gained a staggering 150%.” Keep in mind, this was at the height of the financial downturn. Of course the art market, like any other commodity is driven by a variety of unpredictable factors, so do your homework. Read, research, follow auctions, consult with auction houses and experts, and be sure to authenticate any piece of art you intend to acquire as an investment.

If you would rather invest in art in a less risky way, art funds may be for you. According to Minyanville.com, in 2010 art funds out performed the S & P 500, translating into compound annual returns of 4.8 – 3.5 %.  Since 2008, 11 of the 20 highest prices ever paid at auction have occurred. Phillip Hoffman, Founder of the Fine Art Fund Group advises to allocate no more than 5% of your portfolio in art. The cons: art funds can have very high investment minimums. If you not still not sure you can or should invest in art, read our blog article, Two unlikely art collectors. You’ll learn how Herb Vogel, a US postal worker and his wife, Dorothy, amassed  thousands of pieces of art during their lifetime and donated their acquisitions prior to Herb’s death.

You can also enjoy financial gains from you art investments by donating to charitable organizations. Thanks to the 1995 Tax Act, fine art that you have owned for at least a year and donated to a charitable organization, may be claimed as a deduction at its appreciated value. Prior to 1995, charitable donations of fine art could only be deducted at the original purchase price. A word of caution: be sure to do your due diligence and confirm the receiving organization plans to hold on to the art for a minimum of two years. If the organization plans to profit from the sale of your donation prior to two years, you will only be allowed to claim the original purchase price. As with all tax situations, there are many individual factors that will dictate your tax liability, so be sure to consult a tax professional.

If you love art and would like to explore its investment potential, become familiar with the trends and study the market. With any luck you can enjoy the best of all worlds. Editorial advice—research, be smart, don’t invest your nest egg, but buy the best you can afford.  Most art investment advisors recommend purchasing art as a long term goal rather than a short term investment. As with all investments, remember there are no guarantees. With that in mind be sure to invest art pieces you love, since you may live with it longer than planned.

For some tips on buying art, see our blog article, I’d love to buy that piece, but…

Other resources courtesy of Minyanville.com:

Artnet: This website offers investors the chance to bid on and purchase various works of art from artists all over the world.
Artprice: A leading resource for art market information from all over the world, this site also offers investors the opportunity to hop in on various auctions and get their feet wet in the industry.
MeiMoses: This site focuses heavily on the financial side of things, as it even has its own art index which it pits against major financial benchmarks to compare historical performance.
Christie’s: Featuring live auctions all over the world, investors will be able to find art of all kinds on this massive site.
Sotheby’s: Another site in the same vein as “Christie’s” that will be good for various investment types from all over the world.

References: NY Times, May 3, 2012; CNBC.com, October 8, 2010; Minyanville.com

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