Shock wave through the art market…
China now ranks first, ahead of the USA and the UK

According to Thierry Ehrmann, founder and CEO of Artprice, world leader in art market information, “this unprecedented news represents a turning point in the history of the global art market: China is now the number 1 in terms of Fine art auction revenue”. It took just three years for China to jump from third place (previously occupied by France) in 2007 to first place in 2010, ahead of the UK and the USA, the grand masters of the market since the 1950s.

To reverse the polarity of the global art market from West to East, China has done without artifices such as hypothetical figures from art galleries ( an opaque market compared to public auctions) or even that of furniture or traditional Chinese art objects (the prices of which are shooting up worldwide). Since the 1950s, the reference ranking for the art market has been that of Fine Art at Public Auctions.
In 2010, China accounted for 33% of global Fine Art sales (paintings, installations, sculptures, drawings, photography, prints), versus 30% in the USA, 19 %in the UK and 5% in France *.

Moreover, there were 4 Chinese artists in the Top-10 ranking of global artists by auction revenue for 2010 (vs. 1 in 2009), the lowest of whom generated $112 million dollars during the year. Qi Baishi was in 2nd place ahead Andy Warhol and ahead of his compatriot Zhang Daqian; Xu Beihong took 6th place with a total of $176m and Fu Baoshi was 9th. The younger generation of Chinese artists is now imposing itself even more forcefully that their older counterparts: More than half of the 2010 global Top 10 of Contemporary artists are Chinese (Zeng Fanzhi, Chen Yifei, Wang Yidong, Zhang Xiaogang, Liu Xiaodong and Liu Ye) compared with just three Americans (Basquiat, Koons, and Prince)*.

The heart of the market now beats in Beijing, Hong Kong and Shanghai, the new driving hubs of the global art market. In 2010 Sotheby’s Hong Kong revenue amounted for 2%. At the same time, Christie’s 2010 Hong Kong total was 2,5% and China’s big 4 annual revenues were: Poly International (7,4%), China Guardian (5,32%), Beijing Council (2,07%), Hanhai Art Auction in Beijing (2,74%)*.

Not only has China’s economic strength (second global power in 2010) boosted its art market and projected its culture around the world, but China’s art sector has benefited from the support of its government and of Chinese collectors who are as patriotic as they are prompt to invest. China has understood the Power of Art in the history of nations. In addition, the number of auction records for Chinese artworks is bound to increase as the number of Chinese billionaires rises by 20% per year through 2014 vs. 5.6% p.a. for the rest of the planet.

Art review: 'Collection Applied Design: A Kim MacConnel Retrospective' @ Museum of Contemporary Art San Diego

Don’t miss Kim MacConnell’s retrospective at MCA, La Jolla!

From THE ART NEWSPAPER
Uncertain Tax Outlook Clouds Collectors’ Donation Decisions
by Daniel Grant

NEW YORK—Many art collectors and wealthy individuals are facing remarkable uncertainty in the current federal estate and gift tax laws. Both the federal gift tax and the generation-skipping transfer tax, currently 35 percent, will rise to 55 percent next year in the absence of congressional action. “Everyone is waiting to see what, if anything, Congress will do. It’s a weird year,” said New York attorney Ralph Lerner, a leading art law specialist. However, he noted that even without an estate tax, donors to museums continue to receive an income tax deduction. For some, “2010 is a time of incredible opportunity for estate planning,” said Catherine G. Schmidt, a lawyer and partner with Patterson Belknap Webb & Tyler, New York. The federal gift tax permits individuals to make gifts to their children ($13,000 per child, $26,000 per couple) throughout their lifetime up to $1million tax-free, while the generation-skipping tax allows gifts of up to $3.5million to grandchildren tax-free. Gifts larger than those amounts trigger a tax of 35 percent in 2010. “If you want to give more than $1million to your children, give it now while the gift tax rate is lower,” Schmidt said.
Decisions are particularly tough for people trying to plan ahead, because Congress may write new limits for tax rates and exemption on estate property, potentially making the statute retroactive to the beginning of 2010 (a year in which there is no federal estate tax) and using 2009 rates (up to $3.5million tax-exempt, with the remainder taxable up to a maximum of 45 percent)—or, legislators may not be able to agree on anything, at which point estates in 2011 will again be taxed at 2002 rates (tax-exempt only up to $1million, with the rest taxable at 55 percent). It hasn’t been an easy year for museums soliciting donations of money and objects from estates, since those estates haven’t felt the pressure of the tax code to make charitable gifts. Peter Marzio, director of the Museum of Fine Arts, Houston, acknowledged that tax considerations play a part in when and how much donors give, noting that the museum’s development staff regularly discusses planned-giving techniques, such as bequests, fractional gifts and remainder trusts, with prospective donors to create “an awareness of what might be in their best interest and in ours.”

Among the pieces of legislation Congress has yet to take up is a bill introduced by Senator Charles Schumer (Dem., N.Y.) that would ease restrictions on fractional gifts, allowing donors to extend the period over which they could take deductions from the current 10 years and permitting the amount of the deduction to rise with the value of the artwork. Louis Grachos, director of the Albright-Knox Art Gallery, Buffalo, N.Y., said that with the current uncertainty about the law, donors “don’t feel comfortable right now. I have heard from prospective donors who’ve said, ‘I don’t know what I should do.’ It’s one more hurdle for museum directors.” However, Terry Morello, vice-president for development at the Los Angeles County Museum of Art, said she has not seen “any resistance on the part of donors to give this year.” She added that there have been no instances of family members reneging on a bequest. Dewey Blanton, spokesperson for the American Association of Museums, reported “somewhat mixed signals from the field. Some are concerned about the uncertainty surrounding the estate tax, others seem unaffected. Museums seem to be more concerned about the here and now, given the continuing struggles of the economy, and may be somewhat less focused on the long-term implications of this issue.” He added that the AAM hopes that “Congress takes up the issue during the lame-duck session. In the meantime, AAM will continue to make the case for incentivizing charitable giving, through the estate tax and other methods.”

Tax-free gifts from one generation to another may include art. Schmidt noted that gifts of tangible property like art must be reported to the Internal Revenue Service in tax filings, accompanied by a report from a qualified appraiser. “The objects actually have to be transferred from one person to another,” she added. “A collector can’t just keep it in his or her home and say that the painting now belongs to a grandchild, for instance. They need to sign over a deed of gift and physically transfer the artwork to the recipient.” In the case of minors, who legally may not be able to own property, gifts would be held in trust until they reach majority.

More great information on whys and hows of Fine Art Appraisals for the IRS.

Valuing Art for Tax Purposes

More about IRS rules for donating works of art:

1. All individual works of art or like items valued at $5,000 and above must be appraised. Works of art valued at $20,000 and above must have a copy of the appraisal report attached to the tax return.

2. The work of art must be owned for a minimum of one year to receive a deduction of the Fair Market Value. Otherwise the deduction is at cost basis.

3. The donation must be related to the purpose of the institution receiving it in order to get a deduction of the Fair Market Value otherwise it is at cost basis. You cannot donate a Warhol print to an educational institution and receive a deduction based on its Fair Market Value. If you donate it to an art museum then you can.

4. Fractional giving is when you donate a percentage of an artwork to an institution over a period of time. The value of the contribution is based on the initial date of contribution regardless of whether the value goes up in subsequent years. If the artwork declines in value, however, then your deduction is based on its reduced value.