Recently Lydia Thompson, a principal of Thompson & Martinez Fine Art Appraisals, and expert on Chinese art taught a webinar The Chinese Art Market: Challenges and Opportunities on behalf of the American Society of Appraisers. Drawing on more than 25 years in the Chinese art field, Dr. Thompson provided historical context for the tremendous growth of the market in the past 20 years, the pitfalls of appraising Chinese art as well as the opportunities. To learn more about the topics addressed, please visit: Q&A with Dr. Lydia Thompson
In late 2017, President Trump signed into law, the Tax Cuts and Jobs Act, which went into effect on January 1, 2018. Tax attorneys and accountants are in the process of unpacking this law, and how it affects their clients’ personal and business interests. Personal Property appraisers, those of us who value a wide range of tangible assets, including fine art, rare books, collectibles, jewelry, automobiles and yachts among many other things, also need to understand how this will affect our clients, from the perspective of estate planning, donation, gifting, inheritance and sale. As is commonly known, the 2017 tax reform bill doubles the exemptions for estate tax up to $11.2 million for individuals and $22.4 million for a couple. For the vast majority of U.S. citizens, this will eliminate the need for an appraisal for estate tax calculation.
For those whose estates have an overall value above this new federal exemption threshold, beneficiaries will still need a Fair Market Value appraisal, as of the date of death, of their personal property. For example, a painting by an artist like Jean-Michel Basquiat (1960-1988), purchased by the deceased in 1985 for $10,000 will, given the exponential growth in Basquiat’s market, be worth significantly more in 2018. This stepped-up basis is not only required for estate tax calculation but also for any possible future sale and reporting for income tax. If the painting is sold for $200,000 in 2019, the 28% capital gains tax will be based on the 2018 appraised value rather than the 1985 purchase price. The tax basis of any gifts of personal property transferred within a family, say from mother to daughter while the mother is still alive, is subject to the donor’s tax basis not the donee’s. It may be worth delaying such a gift in order to obtain the after death stepped-up in basis tax benefit.
When it comes to your art collection, these are just a few things to consider in light of the tax reform bill. And remember, the federal estate tax exemption levels are set to expire at the end of 2025, reverting back to the 2017 levels.
The American Society of Appraisers (ASA) has provided its members clarification of the exemptions of the Fish and Wildlife Service (FWS) regulations on the sale of ivory. It is posted here in its entirety:
FWS Releases Proposed Ivory Regulations
Creates De Minimus Exemption; Clarifies Antique Exemption from Director’s Order 210
On July 29, the Fish and Wildlife Service (FWS) released proposed regulations affecting the sale, transfer, donation, or other disposition of African elephant ivory. The regulations, long-expected in the personal property community, prohibit the “sale or offer for sale of ivory in interstate or foreign commerce and delivery, receipt, carrying, transport, or shipment of ivory in interstate or foreign commerce in the course of a commercial activity”. There are, however, several notable exceptions proposed in the regulation.
De Minimus Exemption
FWS has proposed a de minimus exemption for those items which contain a limited amount of ivory that is not the primary driver of the item’s value. Property that meets the de minimus exemption must meet the following requirements:
• Items located in the United States, if the ivory was imported into the United States prior to January 18, 1990 (the date the African elephant was listed in CITES Appendix I) or was imported into the United States under a CITES pre-Convention certificate with no limitation on its commercial use;
• Items located outside the United States, the ivory is pre-Convention (removed from the wild prior to February 26, 1976 (the date the African elephant was first listed under CITES));
• The ivory is a fixed component or components of a larger manufactured item and is not, in its current form, the primary source of value of the item;
• The manufactured item is not made wholly or primarily of ivory;
• The total weight of the ivory component or components in the item is less than 200 grams;
• The ivory in the item is not raw; and
• The item was manufactured before the effective date of the final rule for this action.
FWS provides examples of items it expects to meet the de minimus exemption, such as “the ivory veneer on a piano with a full set of ivory keys”, “insulators on old tea pots, decorative trim on baskets, and knife handles, for example”. FWS also lists examples of items it does not expect to meet the de minimus exemption requirements, such as “chess sets with ivory pieces”, “an ivory carving on a wooden base”, “ivory earrings or a pendant with metal fittings”, or “figurines, netsukes, and jewelry”.
The proposed regulation retains an exemption for bona fide antiques, in line with Directors Order 210 as amended on May 15, 2014. This exemption allows for items that are more than 100 years old to be “sold or offered for sale in interstate or foreign commerce and delivered, received, carried, transported, or shipped in interstate or foreign commerce in the course of a commercial activity”. The proposed regulation clarifies, however, that items which were “imported prior to September 22, 1982, and items created in the United States and never imported” are not required to demonstrate that the antique was imported through an endangered species “antique port”. The enumerated requirements for claiming the antique exemption are as follows:
• It is 100 years or older;
• It is composed in whole or in part of an ESA-listed species;
• It has not been repaired or modified with any such species after December 27, 1973; and
• It is being or was imported through an endangered species ‘‘antique port.’’
NOTE: Under Director’s Order No. 210, as a matter of enforcement discretion, items imported prior to September 22, 1982, and items created in the United States and never imported must comply with elements A, B, and C above, but not element D.
As part of substantiating that an item is 100 years or older, those wishing to sell may use a “qualified appraisal”. However, it is unclear under the proposed regulation whether the use of this term ties back to its use for Internal Revenue Service (IRS) noncash charitable contributions. It is also unclear whether the “qualified appraisal” referenced here must be performed by a “qualified appraiser”, as the term is used at IRS, or if other qualifications would be used to determine an appraiser’s ability to perform a “qualified appraisal” for the purposes of this proposed regulation.
FWS enumerates four requirements for a musical instrument containing worked ivory to be exempted from prohibitions on import or export. It also reinforces that owners of these musical instruments must provide documentation to support that the ivory was obtained legally prior to February 26, 1976, though FWS clarifies that:
[T]here is sufficient information to show that the ivory was harvested (taken from the wild) prior to February 26, 1976, even though the instrument may not have been manufactured until after that date. It also means that there is sufficient information to show that the ivory was harvested in compliance with all applicable laws of the range country and that any subsequent import and export of the ivory and the instrument containing the ivory was legal under CITES and other applicable laws (understanding that the instrument may have changed hands many times before being acquired by the current owner).
The stated requirements for musical instruments are as follows:
• The ivory was legally acquired prior to February 26, 1976;
• The instrument containing worked ivory is accompanied by a valid CITES musical instrument certificate or equivalent CITES document;
• The instrument is securely marked or uniquely identified so that authorities can verify that the certificate corresponds to the musical instrument in question; and
• The instrument is not sold, traded, or otherwise disposed of while outside the certificate holder’s country of usual residence.
In line with Directors Order 210, items containing ivory that are imported or exported as part of an inheritance or household move are exempt from the prohibition, provided that they are for personal use only and accompanied by a valid CITES pre-Convention certificate. However, the regulation clarifies that ivory imported or exported under this exemption “could not subsequently be sold or offered for sale in interstate or foreign commerce or delivered, received, carried, transported, or shipped in interstate or foreign commerce in the course of a commercial activity, even if it qualified under the de minimus exception.” [Emphasis added.] This does not appear to preclude donations of items which are availed under this exemption.
Donations of Items Containing Ivory
Finally, FWS makes clear in the proposed regulation that “[t]he donation of an item consisting of or containing ivory also would not be considered commercial activity, even if the donor qualified for a tax benefit where the tax benefit is not income.” This makes clear that donations of items containing ivory are permissible under the regulation, and can be done to secure a tax deduction for the donor.
ASA continues to review the proposed regulation, and plans to file comments with FWS. For those who wish to file comments, they are due no later than September 28, 2015.
In addition to appraisal services, Thompson & Martinez consults with collectors regarding the acquisition, management and sale of fine art works. Last month, Natasha Bonilla Eckholm spoke to the East County Chapter of the San Diego Museum of Art on art collecting in “A Primer for Aspiring Art Collectors in San Diego: Strategies, Value, Collection Care and More,” presented at the Grossmont Hospital Healthcare Auditorium. The lecture covered collecting strategies and resources, as well as collections care, insurance and legacy planning. Resources for San Diego Collectors
We frequently get calls from people with ivory objects that they want to sell. Due to recent changes to laws at the state and federal level governing the sale of ivory, it has become increasingly difficult to sell anything made of ivory in the United States. There are exemptions to the ban on ivory sale including if you have an ivory object over 100 years old or if the object that you wish to sell includes less than 20% ivory of the surface area among other exemptions. However, the burden of proof is on the seller, who must obtain a permit by submitting documentation supporting their assertion to the governing state or federal agency. At the federal level, the latest update is Director’s Order #210 which you can click on and read here do210. Due to the outcry of dealers, auction houses and museums claiming that these laws are overly restrictive and punitive to sellers and collectors, these regulations are in the process of being modified. Since 1970 California has had the most restrictive regulations on objects made of endangered species including ivory, mammoth and rhinoceros horn which I have written about in previous post. Now states like New York, (see ivoryfaqs by New York law firm, Pearlstein and McCullough) and New Jersey have enacted similar regulations. Other states are expected to follow their lead and enact more stringent laws.