In
2020, I explored several options for deferring capital gains tax on the sale of artwork. Since then, tax law has evolved, and new tools have emerged, offering collectors, investors, and estate planners updated strategies for managing highly appreciated art and collectibles. As of 2025, sellers face an effective federal tax rate that can exceed 31.8%, plus state taxes, when parting with artwork—making proactive tax planning more essential than ever.
In this updated guide, I walk through the most relevant strategies available to defer, reduce, or even eliminate capital gains tax when selling artwork or collectibles—each tailored to different client goals, including philanthropy, estate planning, liquidity, and wealth preservation.
Why Selling Artwork Triggers Higher Taxes
Unlike stocks, bonds, or real estate, artwork and collectibles are taxed at a higher long-term capital gains rate—28%—regardless of your income bracket. Add the 3.8% Net Investment Income Tax (NIIT) and state taxes, and sellers can easily see more than a third of their sale proceeds lost to taxation.
For instance, if a painting purchased for $50,000 is sold for $250,000, the federal tax bill could be over $63,000-31.8% of the $200,000 gain—before state tax is considered. For high-net-worth collectors, this has a direct impact on their legacy, liquidity, and philanthropic ambitions.
Seven Strategies for Minimizing Taxes on Art Sales
1. Charitable Remainder Trusts (CRTs): Philanthropy Meets Tax Efficiency
A Charitable Remainder Trust allows you to donate artwork, defer taxes, and receive an income stream for life or a term of years. Because CRTs are tax-exempt entities, they can sell the artwork without triggering immediate capital gains tax. The full sale value can then be reinvested, and the donor receives both income and a partial charitable deduction.
Pro Tip: This works especially well for art no longer wanted for display but highly appreciated in value. However, limitations apply if ownership and sale of artwork isn’t part of the charity’s exempt purpose.
2. Charitable Lead Trusts (CLTs): Front-Loading Your Giving
CLTs are the inverse of CRTs—charity gets paid first, then your heirs. A well-structured CLT allows donors to support a favored cause now while transferring appreciated art to family members later at a discounted gift tax value. For collectors facing substantial estate tax exposure, CLTs can serve both philanthropic and intergenerational planning goals.
3. Qualified Opportunity Zone Funds (QOZs): Reinvest and Grow Tax-Free
Capital gains from artwork can be deferred and partially reduced if reinvested in a QOZ fund within 180 days of sale. If held for at least 10 years, any appreciation in the QOZ investment is tax-free. While the deadline for deferring original gains is December 31, 2026, the long-term upside of tax-free appreciation remains compelling.
Note: QOZs work best when paired with the sale of high-gain artwork that doesn’t align with your long-term collection strategy.
4. Deferred Sales Trusts (DSTs): Installment Sales with an Estate Twist
Using an independent third-party trust, you can sell artwork on an installment basis—deferring recognition of capital gains until payments are received. A DST is not a tax shelter but rather a timing strategy, useful for diversifying risk and managing cash flow. It also opens opportunities to pass on a tax-deferred income stream to heirs. Be aware that DSTs are on the IRS’ “dirty dozen” list in the past.
5. Art Exchanges and Donations: Charitable Deduction, Cultural Impact
Emerging nonprofit art exchanges allow donors to contribute appreciated works, receiving a tax deduction and avoiding capital gains. These platforms may lease or sell the art, facilitating broader access to art while aligning with the donor’s charitable goals. Direct museum donations—especially if the work will be exhibited—also offer full fair market value deductions.
6. Strategic Estate Planning: Hold Until Death or Gift Creatively
The simplest tax strategy? Hold appreciated artwork until death. Your heirs receive a step-up in basis, eliminating capital gains tax. Alternatively, gifting fractional interests in artwork over time spreads out gains and shifts future appreciation out of your taxable estate.
Example: A widow who donates some works, sells others through a CRT and QOZ fund, and keeps the rest for posthumous transfer can reduce her tax burden by hundreds of thousands of dollars while preserving her philanthropic legacy.
7. Fractional Ownership and Art Funds: Sharing Risk, Sharing Gain
Since 2020, platforms have developed that offer fractional ownership or pooled art funds letting investors diversify across multiple pieces, reducing exposure to tax from one large sale. Though these don’t eliminate taxes, they offer flexibility, income potential, and sometimes better liquidity than selling a whole piece.
Final Thoughts: Planning Ahead Is Essential
The Tax Cuts and Jobs Act eliminated like-kind exchanges for art in 2018, removing a popular tool for deferring gains. As we approach the TCJA sunset and new tax proposals loom, collectors must now use more nuanced vehicles to preserve value.
Whether your goal is philanthropy, liquidity, family wealth transfer, or avoiding tax surprises, there’s no one-size-fits-all solution. But with a thoughtful plan—and expert guidance—it’s possible to transform a tax liability into a strategic opportunity.
Action Step: If you’re considering selling a significant piece or collection in 2025 or beyond, now is the time to review your options with an advisor well-versed in tax-efficient art succession planning.
Matthew F. Erskine is a Forbes contributor and a fourth-generation trusts and estates attorney, focusing on succession planning for artwork, collectibles, and legacy assets. To join his Collector’s Mastermind or learn more about bespoke strategies for collectors, visit erskineco.com.
Read the full article here