Sunday, June 11, 2006

The Missing Piece

The cover story of The New York Times Sunday real estate section today is about a man who's looking to trade a Maurice Sendak watercolor for a Manhattan apartment, but it leaves out a very important part of the equation: income taxes.

Near the end, the article does note that the seller of the apartment would have to include the value of the bartered work as part of the purchase price received. But it's equally important to mention that the buyer of the apartment also has to pay income tax on the value of the bartered work -- it would be as if he sold the Sendak for cash and then used the cash to buy the apartment. So if the Sendak is really worth $650,000, as the owner suggests in this article, he'd have $650,000 of income to pay taxes on (but no cash from the sale with which to pay it). This is exactly what got artist Peter Max into trouble a decade ago: bartering paintings for real estate and failing to declare the "sale" of the paintings on his income tax returns.