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Nope. You don't sell it. You donate it. It's considered a charitable contribution, not a sale, and that makes it 100% tax deductible. [1] I guess you'd have

Nope. You don't sell it. You donate it. It's considered a charitable contribution, not a sale, and that makes it 100% tax deductible. [1] I guess you'd have to spend $20 million on the painting, but you're buying it from yourself, so in reality you're only on the hook for the 2% fee from the auction house. [1] https://www.usa.gov/donate-to-charity#item-211605 https://www.usa.gov/donate-to-charity#item-211605

nightski 5y ago
Before that though, when you bought your own painting for $20M. I'd imagine it would be pretty difficult to write off that purchase as a business expense or something. The IRS is going to notice a $20M write-off for a business with no additional income pretty quick. But you will have to pay taxes on the $20M income, even if it is coming from yourself.
- cronin101 5y ago
  In the above example you pay capital gains on the one (1) $20m initial painting that allows you to then donate N "equal value" paintings. So you can dilute the capital gains % indefinitely (1/N).
  - AnthonyMouse 5y ago
    But your tax basis in the other paintings is still $1M. If you donate them claiming they're worth $1M, you don't get a $20M deduction. If you claim they're worth $20M then transferring them is a realization event and you owe capital gains on $19M. Then you get a $20M deduction which cancels out the capital gains and leaves you with just the original $1M deduction for what you actually paid, right? What people really do this for is insurance fraud. Buy some paintings for $1M each, get them appraised and insured for $20M each, then somebody "steals" them or you have a convenient structure fire and make the N*$20M insurance claim.
    - sbelskie 5y ago
      Unless paintings are different than other assets commonly donated (e.g. stocks), this doesn’t sound right. If I donate a stock that has appreciated in value, I pay no capital gains tax and am still able to deduct the full market value of the stock (up to certain limits).
    - toast0 5y ago
      As another poster said, assuming paintings are treated like stock, as long as you've held it for more than one year, donating an aprechiated asset is magic. In this example, you get a $20M deduction and you don't have to realize the $19M gain. Depending on how the shill purchase in the hypothetical is arranged, you might have realized a gain there... but then again, maybe you just pay the auction fees.
      - ThrustVectoring 5y ago
        EDIT: this was wrong, did research and you actually have to hold for a year Original: Holding a year or not doesn't matter for donating appreciated assets, AIUI
        Bedon292 5y ago
        If you don't hold it for the year you still don't realize the capital gains, but you only get to deduct the cost basis. After a year you get to deduct the current value.
    - devoutsalsa 5y ago
      > If you claim they're worth $20M then transferring them is a realization event and you owe capital gains on $19M. Then you get a $20M deduction which cancels out the capital gains and leaves you with just the original $1M deduction for what you actually paid, right? Nope. Think of it this way: - you lobby government to make charitable donations tax deductible, meaning you can reduce your income by the stated value of the donation - you use the auction house hack to inflate the value of the painting from $1_000_000 USD to $20_000_000 USD buy buying it from yourself - No one will buy your painting for $20_000_000 USD, so it's not really worth that in the open market, but the art museum (in your backyard & founded by you) will give you a receipt stating the art is worth $20_000_000 USD - Unless you reduce your income, your tax rate is 50%, so you donate the inflated art piece (to your art museum in your backyard), give yourself a receipt for the donation - You attach that receipt to your tax return, lowering your taxable income from $A_LOT to $A_LOT minus $20_000_000, which at a 50% tax rate saves you $10_000_000 in taxes
  - deleted 5y ago
    [deleted]
ChrisLomont 5y ago
Any charitable giving of over a low threshold would be audited for value to prevent this type of grift. You'd likely end up in serious tax trouble. For example: "Donating non-cash items to a charity will raise an audit flag if the value exceeds the $500 threshold for Form 8283, which the IRS always puts under close scrutiny. If you fail to value the donated item correctly, the IRS may deny your entire deduction, even if you underestimate the value." https://budgeting.thenest.com/much-should-donate-charity-tax-purposes-triggering-audit-33706.html https://budgeting.thenest.com/much-should-donate-charity-tax...
- coliveira 5y ago
  Yes if you're poor, that would stick out on your tax returns. If you're rich and other parts of the tax returns are even more complex, I think this would fly without any problem.
  - Matticus_Rex 5y ago
    From rich friends' experience, that's not how it works. The bigger the fish, the more resources get thrown at it. A friend got audited and they came up with the most absurdly tiny mistakes in really complex things. It turned out they couldn't find anything they thought was more than a mistake, but their thoroughness was pretty incredible.
    - coliveira 5y ago
      The difference is that the rich have the lawyers to deal with that. You shouldn't worry about them. An audit for a rich person is just another annoyance that they pay to go away, it is not gonna change their behavior.
    - lozaning 5y ago
      On average, the more money you have and the more complex your taxes the less likely you are to be audited. https://projects.propublica.org/graphics/eitc-audit https://projects.propublica.org/graphics/eitc-audit
josho 5y ago
OMG, I wonder if this is why Trump has his own charities that also happen to make frequent donations of paintings!?
- MagnumOpus 5y ago
  That’s a bingo. (Sometimes it is just bribery or money laundering, transferring worthless hard-to-value art for millions is ideal not just for tax fraud.)
suifbwish 5y ago
There is a hole in this logic. It’s perfectly legal in the US to create your own religion proclaiming you as a deity whose boredom will destroy the universe and thus you need lots of expensive toys to keep your boredom from collapsing the universe. Any religion can have a nonprofit organization formed around it, making it acceptable and even expected that any donations made to that religious nonprofit are used to carry out the observance of that religions doctrine, that being the purchase of more expensive toys to prevent your boredom from ending the universe. Any donations to the religion would be not taxable.

nightski 5y ago

Before that though, when you bought your own painting for $20M. I'd imagine it would be pretty difficult to write off that purchase as a business expense or something. The IRS is going to notice a $20M write-off for a business with no additional income pretty quick. But you will have to pay taxes on the $20M income, even if it is coming from yourself.

cronin101 5y ago
In the above example you pay capital gains on the one (1) $20m initial painting that allows you to then donate N "equal value" paintings. So you can dilute the capital gains % indefinitely (1/N).
- AnthonyMouse 5y ago
  But your tax basis in the other paintings is still $1M. If you donate them claiming they're worth $1M, you don't get a $20M deduction. If you claim they're worth $20M then transferring them is a realization event and you owe capital gains on $19M. Then you get a $20M deduction which cancels out the capital gains and leaves you with just the original $1M deduction for what you actually paid, right? What people really do this for is insurance fraud. Buy some paintings for $1M each, get them appraised and insured for $20M each, then somebody "steals" them or you have a convenient structure fire and make the N*$20M insurance claim.
  - sbelskie 5y ago
    Unless paintings are different than other assets commonly donated (e.g. stocks), this doesn’t sound right. If I donate a stock that has appreciated in value, I pay no capital gains tax and am still able to deduct the full market value of the stock (up to certain limits).
  - toast0 5y ago
    As another poster said, assuming paintings are treated like stock, as long as you've held it for more than one year, donating an aprechiated asset is magic. In this example, you get a $20M deduction and you don't have to realize the $19M gain. Depending on how the shill purchase in the hypothetical is arranged, you might have realized a gain there... but then again, maybe you just pay the auction fees.
    - ThrustVectoring 5y ago
      EDIT: this was wrong, did research and you actually have to hold for a year Original: Holding a year or not doesn't matter for donating appreciated assets, AIUI
      - Bedon292 5y ago
        If you don't hold it for the year you still don't realize the capital gains, but you only get to deduct the cost basis. After a year you get to deduct the current value.
  - devoutsalsa 5y ago
    > If you claim they're worth $20M then transferring them is a realization event and you owe capital gains on $19M. Then you get a $20M deduction which cancels out the capital gains and leaves you with just the original $1M deduction for what you actually paid, right? Nope. Think of it this way: - you lobby government to make charitable donations tax deductible, meaning you can reduce your income by the stated value of the donation - you use the auction house hack to inflate the value of the painting from $1_000_000 USD to $20_000_000 USD buy buying it from yourself - No one will buy your painting for $20_000_000 USD, so it's not really worth that in the open market, but the art museum (in your backyard & founded by you) will give you a receipt stating the art is worth $20_000_000 USD - Unless you reduce your income, your tax rate is 50%, so you donate the inflated art piece (to your art museum in your backyard), give yourself a receipt for the donation - You attach that receipt to your tax return, lowering your taxable income from $A_LOT to $A_LOT minus $20_000_000, which at a 50% tax rate saves you $10_000_000 in taxes
- deleted 5y ago
  [deleted]

ChrisLomont 5y ago

Any charitable giving of over a low threshold would be audited for value to prevent this type of grift. You'd likely end up in serious tax trouble. For example: "Donating non-cash items to a charity will raise an audit flag if the value exceeds the $500 threshold for Form 8283, which the IRS always puts under close scrutiny. If you fail to value the donated item correctly, the IRS may deny your entire deduction, even if you underestimate the value." https://budgeting.thenest.com/much-should-donate-charity-tax-purposes-triggering-audit-33706.html https://budgeting.thenest.com/much-should-donate-charity-tax...

coliveira 5y ago
Yes if you're poor, that would stick out on your tax returns. If you're rich and other parts of the tax returns are even more complex, I think this would fly without any problem.
- Matticus_Rex 5y ago
  From rich friends' experience, that's not how it works. The bigger the fish, the more resources get thrown at it. A friend got audited and they came up with the most absurdly tiny mistakes in really complex things. It turned out they couldn't find anything they thought was more than a mistake, but their thoroughness was pretty incredible.
  - coliveira 5y ago
    The difference is that the rich have the lawyers to deal with that. You shouldn't worry about them. An audit for a rich person is just another annoyance that they pay to go away, it is not gonna change their behavior.
  - lozaning 5y ago
    On average, the more money you have and the more complex your taxes the less likely you are to be audited. https://projects.propublica.org/graphics/eitc-audit https://projects.propublica.org/graphics/eitc-audit

josho 5y ago

OMG, I wonder if this is why Trump has his own charities that also happen to make frequent donations of paintings!?

MagnumOpus 5y ago
That’s a bingo. (Sometimes it is just bribery or money laundering, transferring worthless hard-to-value art for millions is ideal not just for tax fraud.)

suifbwish 5y ago

There is a hole in this logic. It’s perfectly legal in the US to create your own religion proclaiming you as a deity whose boredom will destroy the universe and thus you need lots of expensive toys to keep your boredom from collapsing the universe. Any religion can have a nonprofit organization formed around it, making it acceptable and even expected that any donations made to that religious nonprofit are used to carry out the observance of that religions doctrine, that being the purchase of more expensive toys to prevent your boredom from ending the universe. Any donations to the religion would be not taxable.