Usually it’ll be capital gains income where they would be writing off which is a much lower rate. Example 20% in which case they saved 15 mil in taxes for 50 mil investment.
first 20% goes to gift aid in the UK so some countries you wouldnt even get full tax band.
Now tax free storage of art usually in ports is interesting but not some 100% write off scheme.
If that was the case they would be losing millions each transaction.
But being rich is not about having cash, it's about using cash to achieve your ends. Giving 75 million is really buying 75 million worth of philanthropy - 75 million worth of social status, or invites to exclusive parties, or favours from patrons, or support for projects valuable to them. And they bought it for only 7.5 million!
In this example, wouldn't it have cost this person $50 million dollars though?
In this case the rich person is spending $50 million dollars to save the tax on $75 million? Makes zero sense.
Jerry: How is it a write-off?
Cosmo Kramer: They just write it off.
Jerry: Write it off what?
Cosmo Kramer: Jerry, all these big companies, they write off everything.
Jerry: You don't even know what a write-off is.
Cosmo Kramer: Do you?
Jerry: No, I don't.
Cosmo Kramer: But they do. And they're the ones writing it off.
TL;DR. Put $50M capital to work to get a $30M tax write off in the future ASSUMING significant gains. During that time you get to own an expensive piece of art. So you get the artwork for a net COST of $20M ($50M purchase - $30M tax benefit).
It doesnt make sense purely on economics of the example - unless significantly more capital appreciation in the asset, other reasoning for pursuing it or other tax benefits in the country.
So you're asserting that rich people and appraisers and insurance companies and museums are all conspiring to commit tax fraud?
It isn't in the insurance company's best interest to ensure they have an accurate assessment of the value of the item they're insuring?
What is being described above is fraud.
Kay: You know how naïve you sound? Senators and presidents don’t have men killed.
Michael: Oh. Who’s being naïve, Kay?
Second, the IRS is hip to this. They require a qualified appraisal, they have rules about who the appraiser can be and what information is required. Then, they have a network of experts who would do their own research on an art deduction of this size and give their own estimate of value (without knowing how much the taxpayer was claiming it was worth). And finally, if the charity that received the artwork sells the artwork for less than $75 million before the IRS does its research, they're going can use that information to determine the real value.
-- https://www.reuters.com/legal/legalindustry/unlocking-myster...
In short, for people planning on avoiding taxes, please consult a licensed tax avoidance specialist for advice in addition to doing research on internet chat boards.
Here’s a more realistic way it might work.
Bob buys paintings A, B, C, and D as a lot for $10MM.
“Things happen” in the art market and a few years later lo and behold “everyone” agrees those paintings are worth $200MM of course.
Painting A (the most marginal of the four, of course) gets donated to museum X with a value of $50MM.
Given standard tax rates on passive income Bob saves at least $10MM on his next tax bill and now has three completely free paintings thanks to your tax dollars.
>later lo and behold “everyone” agrees those paintings are worth $200MM of course.
Didn't Bob just get $190MM increase that is going to be capital gains?
1 - get out of paying taxes by "showing a loss" somewhere
2 - don't ever lose money trying to get out paying taxes
Show tax deferrable losses only when you make gains elsewhere sufficient to cover at least the basis as well as the capital gains that you would have earned had you sold the item.
It works best if you do this across completely unrelated asset classes: offset real estate taxes with collector cars, offset art sales taxes by taking a loss in some shell company. It takes a lot of money to get in this kind of scheme, because you have to vacuum up property that's likely to grow in value. For example, don't buy cars (which depreciate), buy one of kind sports cars for which there's a collectors market. It also takes a lot of time to tap into various collector markets and find ones that are likely to yield or will soon yield growth for your asset classes. Not all collector markets go up forever, they're as fad driven as anything, but some markets have reliably shown growth -- like fine art.
My favorite scheme is one you see on the "Real Housewives" show. Start a nonprofit charity, get all your friends to donate to it (they're all trying to skip out on taxes also), pay yourself an exorbitant salary out of this "charity" and hold elaborate fundraisers that are essentially parties as the operating costs for the charity. Give the remainder to another charity downstream. Attend your friend's charity fundraisers/parties, donate to them in turn.
Looking at the circle of "philanthropists" they get to attend socialite functions, party, get paid, and do it all by helping each other offset taxes on gains they're making in other investments within their own households. They also get to inexpertly run "charities" where the hotel ballroom they rent for the function costs more than the remainder of the donated money they actually send to their claimed cause -- but also if the tax man comes they can just say they had no idea what they were doing.
Tie it to some personal event (e.g. "my second cousin fell from a bike and broke her wrist and now I'm running a charity for bone density research") and people outside the main circle might get sucked in and also augment the entire thing with additional heartfelt donations, which only increases the size of the parties and the salaries. Advertise you "raised $x" at an event, but don't mention how much went to actually supporting the cause.
It works because:
- it both obfuscates and mixes up everybody's money to the extent that it becomes very hard to pull apart
- the individual charities don't become large enough for the IRS to spend time on if you file all the appropriate paperwork
- it's not really an asset class in the same way investments are, so it's nearly impossible to show tax avoidance by simple substitution
- the government wants to encourage charity
You have to get really large and egregious before anybody in the IRS cares. Like NRA large.
Then at your death there’s a thing called stepped up basis so your heirs inherit it at the market value not the original value.
So your family net worth can go up by hundreds of millions without any of that being taxed at all.
Yes it’s really as fucked up as it sounds. The very rich simply don’t pay taxes like you and me.
The donation is made to a non-profit controlled by the donor. The non-profit provides token public access, at best, while the donor still has near exclusive use and control over the "donated" property.
Rich person buys a painting, by an artist, for $50 million and puts it in their collection.
Another person buys another painting by the same artist for $75 million.
The rich person gets their painting reappraised by an art expert. It is now “estimated” to be worth $75 million.
The rich person donates the work to a museum, a non-profit. The donation gives them a $75 million tax write off.
The rich person just saved $25 million that would have otherwise been taxed.