Art collectors benefit from tax advantages thanks to private museums

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Although there are no verifiable figures on the precise number of private art museums and foundations in the United States, art advisers and tax experts who deal with wealthy collectors say the total is in increase. “There has definitely been a major increase in this area,” said Adam von Poblitz, head of estate planning at Citi Private Bank and tax expert. He said he was currently in talks with half a dozen families about establishing private museums or private operating foundations for their art collections.

In 2013, a Private Museum Summit was held in London, the first of its kind and a sign of the rapid increase in the number of museums around the world, particularly in Asia. In the United States, Suzanne Gyorgy, head of art consulting and finance at Citi Private Bank, said that over the past decade she had “seen more and more warehouse spaces transformed into private museums or people building museums on their private property”.

Donations to established museums, which also receive tax relief, are still common, but most institutions are selective about what they accept. Many don’t specialize in contemporary art which now attracts some of the highest prices at auction. Moreover, donating a work of art means completely relinquishing power over a once-valuable asset. As the two-volume guide “Art Law” advises, private operating foundations may be a good option “for a collector who wants the tax benefits of donating his art collection but cannot afford to lose full control of the collection”.

Mr. Lerner, co-author of the guide, helped popularize private museums in the mid-1980s, he said, by applying the tax code “in creative ways.” The practice, he said, “makes it possible to have your cake and eat it too.”

Dorothy Kosinski, director of the Phillips Collection in Washington, said public funding for the arts was miniscule. “Why not give these people credit,” she said, “if they’re going to spend their time and money supporting artists and opening their facilities to the public?”

Although art donated to a charity or foundation ceases to be the private property of the owner, the donor can still control it through the foundation and be eligible for tax deductions. According to Glenstone’s 2012 tax return, Mr. Rales donated $149 million in stock, mostly from Danaher, potentially saving him tens of millions of dollars in capital gains tax. values. His partner and brother, Steven M. Rales, donated an additional $26 million in stock to Glenstone from the Janalia Corporation, a holding company the brothers own.

Once a nonprofit foundation is established, it can defray the cost of conserving, maintaining, and insuring art, as well as designing and building exhibition facilities and of storage. The Rales are now planning a second 150,000 square foot museum, designed by architect Thomas Phifer. The nonprofit organization’s art purchases are also exempt from state and local sales taxes.

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