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Hidden tax benefits of investing in fine art and NFTs

The fine art industry has grown over the last few years, so you must understand all the advantages you can reap from this extensive sector. Running a fine art firm is like operating any other business because you have to pay for all the expenses and costs associated with such an operation. Fortunately, you can enjoy some hidden tax benefits from owning such an enterprise. Many entrepreneurs don’t understand this, so use the information below to become well-versed in the subject.

Achieving investor status

There’s much that goes into investing in fine art and non-fungible tokens. However, there has not been clear guidance on NFTs from the IRS. On the flip side, there are a few deductibles investors in fine art asset management can enjoy. Selling a piece of art you’ve been holding onto for a year can guarantee you a 28% long-term capital gain rate. Nonetheless, if the IRS classifies you as a collector, getting any tax deductions related to the purchase, transportation, and maintenance of an art piece can be challenging.

On the flip side, you can deduct these expenses when you achieve investor status. The IRS will have first to confirm that you collect art as an investment and not just a hobby. This means you collect art with the intent of selling it at a profit. Otherwise, you will be regarded as a collector and lose the right to enjoy any tax deductions.

Possible NFTs tax deductions

Non-fungible tokens are digitalized pieces of art. The IRS has not categorized people who can collect or invest in NFTs. Still, there are chances of that classification happening soon. Unfortunately, the deductions you can enjoy when dealing with these digitized items will be much lower than with fine art asset management. This is because there are fewer expenses for handling NFTs relating to their purchase, transport, and maintenance.

This means that even the income will be lower than dealing with fine art asset management. According to CNBC, the standard deviation calculations show a volatility rate of 14.9% for all art categories and 25.8% for contemporary art. NFTs will remain under collectibles if the IRS does not give contrary authoritative guidance. This means you will enjoy a 28% long-term capital gains rate for all collectibles you hold for more than a year.

Investing in art presents a lucrative opportunity, so it’s beneficial to understand the tax benefits you can enjoy by choosing this investment path. Contact A.A. Fine Art today for any questions you have about flourishing in the art business.

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