Question

if the tax payer is an artist who sold her painting to an art gallery for $6,000, what is the amount and character of their gain on the sale.

Answer 1

The art sold by artists and dealers is considered inventory, which means sales are taxed generally at rates of up to the highest ordinary income tax rate, which is currently 39.6%

The sale of her art will be taxed as ordinary income up to 37% of adjusted gross income (AGI), depending upon tax bracket. sales proceeds will not be treated as either a short or long-term capital gain. However, you will be able to deduct against yearly current income rent or depreciation for studio expenses, insurance, shipping, postage, and office overhead as well as the cost of materials. Most importantly, net operating losses may be deducted against income in the amount that exceeds 2% of AGI,and the excess loss may be carried over to be deducted against subsequent years’ income.