Is an original work of art considered a capital asset of the artist who created it?

Question

I'm trying to find out more about the tax treatment of sale of art, specifically when the original artist sells the work the first time. I'm not concerned with subsequent sales. The tax jurisdiction is the USA.

Is the original work of art considered a capital asset of the artist, and is its sale therefore taxed at one of the capital gains rates (short- or long-term)? Or is it considered ordinary business income, subject only to deduction for cost of materials, etc?

I know that a patent is considered a capital asset of the inventor, and sale of the patent by the inventor gets capital gains treatment (subject to certain conditions). I'm curious if there's an analogous treatment for fine artists and their original works at first sale.

An idea of where to look for the answer would be as gratefully received as the answer itself. I've spent several hours on Google, and everything I've found deals with capital gains treatment for art collectors, investors, etc.

Thanks!

Gary E · Answer 1 · 2010-09-29 05:23:56Z

Every piece of art I have created and sold is taxed as ordinary business income. And if you donate a piece of art to a charity or non-profit the only credit you get is for the ordinary business expenses involved in the creation of that artwork. (You can only deduct the cost of materials.)

John Bogrand · Answer 2 · 2010-10-01 20:06:19Z

Capital assets are really just assets that have longer then a year of useful life. To be an asset you first have to have a cost. It isn't related to the revenue side. You could do different type of revenue recoginition based on how your artwork is sold. Most likely though cash basis would be appropriate (each piece sold is recognized at time cash and merchandise change hands). Revenue recognition around project basis could be done if you were selling original work that someone commissioned you to create and it took a longer pierd of time to create but cash system is easier and most business do it that way.

If your art were something that you rented off then you could do something around making it into a capital asset (again based on your costs) but the expenses of the capital asset can't then be recognized right away and only shows up as the asset depretiates.

When someone buys art it has a lifespan that is more then a year and so becomes a capital asset (duration of use) based on the cost the person paid. Because selling the art isn't part of their normal business any price paid to this buyer above the original cost minsu depretiation (not sure if that applies to art) is recognized as a capital gain.

So really the short and sweet answer Gary already provided.

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Is an original work of art considered a capital asset of the artist who created it?

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