Before you get started with art collecting, it is imperative that you are familiar with all of the costs you might pay in the process. The list may seem daunting, but don’t let it discourage you. There is plenty of money to made in art with these costs in place, but it is essential that you know what the costs are so you can plan accordingly. Also keep in mind that not all of these costs will apply to everyone in every situation. With that, here is a list of the most common art collecting expenses:
Capital Gains Tax on Collectibles
All investments are subject to a capital gains tax on what they earn, fine art, however, is subject to a higher tax rate because of its status as a collectible. That rate is currently 28%.
On the other hand, you can receive a tax deductible if you lose money on an art investment or if you donate your art. Make of that what you will, law abiding citizen.
Considering the cost and physical nature of an art investment, you’re going to want insurance to protect you from non-market related loses (theft, wine throwing, etc.). Often, your homeowners insurance will not cover your fine art, so you’re probably going to need a separate plan. Prices vary, but you can get a quote from most insurance websites.
Also, be sure to get regular appraisals of your artwork. If the value of your work goes down, so does your insurance, and if it goes up, you’ll have it fully covered in case anything happens.
Art advisors are great for cutting back on time spent researching and gallery hopping, but, as with any convenience, it costs money. Advisors are not necessary by any means, but their expertise certainly comes in handy.
An art advisor will generally charge either a monthly fee or a percentage of the sale price of a work (usually between 5-10%). Keep in mind that some galleries offer advisors up to a 20% discount on work and if the advisor decides to pass these savings on to you, you would actually save money with an advisor charging a 5-10% commission.
Nearly every auction house will charge a buyer’s premium in addition to the final hammer price of a purchased artwork. This rate differs between auction houses and is usually based on the total hammer price. Be sure to check the buyer’s premium before you buy from an auction so that you know how much you will actually pay for a piece. Of course, this only applies to art bought at auction.
Just as you pay a fee to buy at auction, you’ll pay a fee to sell at auction. This fee is called a commission and it is often negotiable. The more rare and exciting your item, the lower a commission you’ll be likely to negotiate. You may be able to bypass the commission altogether if your work is exciting enough.
Storage and Transportation
For some, this might mean simply driving the work home in your own car and then hanging it yourself on your living room wall. For others, this might mean having a professional company move it to a secure and environmentally controlled storage facility. The latter is going to better protect your investment, but it’s also going to cost you. You should take into account all storage, handling and transportation fees before you make an investment.
Now that you’re aware of the costs, here are some practical tips for Realizing a Return on Your Art Investment. Still unsure if the costs will make your art investment worth it? Read Why Investing in Art is Actually a Good Idea.