Inheriting a valuable piece of art can feel like a fantastic gift. But if you’ve recently inherited a loved one’s art collection, you may be wondering what happens when it comes to taxes.
In general, you will not have to pay taxes on art you inherit from a loved one. However, if you sell the art, you may be subject to income taxes on your capital gains. Likewise, in some instances, the estate itself may need to pay estate taxes before you receive your inheritance.
How Much Is Art Inheritance Tax?
In all but six states, you will not have to pay an art inheritance tax for simply receiving art as a bequest from an estate. This is because the federal government does not charge an inheritance tax, and most states follow suit. The only states that assess an inheritance tax are Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania, and close relatives are typically excluded from inheritance tax under these state laws.
However, it’s essential to keep in mind that when estates exceed a certain threshold, they may be subject to state and federal estate taxes. While this amount will be paid by the estate before any assets, including art, are distributed to the deceased person’s heirs, beneficiaries should understand how estate taxes work, as they can reduce the amount of money they inherit.
In 2023, federal estate taxes will be assessed on estates that are worth more than $12.92 million and are not being inherited by the deceased person’s spouse. Likewise, estates in Washington DC and the 12 states that impose an estate tax (Connecticut, Hawaii, Illinois, Maine, Massachusetts, Maryland, New York, Oregon, Minnesota, Rhode Island, Vermont, and Washington) may also be subject to estate taxes if they exceed the often-lower state-imposed thresholds.
What Do You Do with Inherited Art?
Typically, you can do whatever you want with inherited art. Once you have received your inheritance, there will generally be no restrictions on how you can use it or dispose of it, and you will be able to make your own choices on what to do with any pieces of art you inherit.
However, this is only the case if you inherit the art outright. If the art is held in a trust and will remain in the trust, you will only be able to use the art according to the terms of the trust instrument.
Best Way To Sell Inherited Art?
If you’ve inherited art that you want to sell, there are several ways to handle the situation. The best course of action for you will depend on the size of your inherited art collection, its value, and your personal preferences.
For instance, if you only inherit a few pieces of art you want to sell, you should consider retaining an art appraiser to value the pieces for you. However, if you inherited a substantial amount of art, you may prefer to work with a collection manager.
When it comes to actually making sales, most people who inherit art either try to sell it themselves or consign it to an art dealer, gallery, or auction house. While selling the collection outright will save you money when it comes to paying commissions, you may ultimately make less on the art without connections to prospective buyers. It’s always a good idea to consult with a financial advisor before selling assets like art, particularly when dealing with a sizable or valuable collection.
Additionally, when selling inherited artwork using any method, it’s essential to remember that you will likely have to pay income taxes on any capital gains. In most cases, this is calculated by subtracting the art’s fair market value (FMV) on the date the deceased person passed away from the sale price.
So, if you sell the art for FMV, you will typically not have to pay any income taxes on the money you make from selling inherited art. However, there are exceptions to this rule, so be sure to discuss your situation with a tax professional before making any sales.
What If Other Beneficiaries Want the Art?
If other beneficiaries want the art that is specifically bequeathed to you in a will, they cannot force you to give it to them without challenging the validity of the will itself. You are entitled to inherit the art that is left to you.
However, if you are not particularly attached to the idea of inheriting the art, you may want to consider other options. For instance, you may be able to reach an understanding where the beneficiary that wants the art takes it, and you get an equivalent portion of their inheritance. As with any sort of estate dispute, it’s always wise to involve a probate litigation lawyer as soon as possible.
An experienced attorney can help you negotiate a fair arrangement upon which all parties can agree. Likewise, if you cannot come to an agreement, a lawyer can help you protect your inheritance rights to the art if the other beneficiaries contest the will in court.
About RMO Lawyers, LLP
RMO LLP provides personal and efficient inheritance dispute services to individual and institutional clients. The firm’s attorneys focus on probate litigation involving contested trust, estate, probate, and conservatorship matters. Serving California and Texas, with offices in Los Angeles, Pasadena, Orange County, San Diego, Fresno, the Bay Area, Dallas, and Houston. For more information, please visit RMO Lawyers.
