Tax Provisions regarding maintenance and restoration cost

In this post, we shall consider specific provisions regarding the cost of maintenance and restoration of an artwork for taxation. If you have purchased an old or damaged work and have incurred a cost to repair the same, you may think that the cost is automatically eligible for deduction purpose. But the issue is not that straightforward.

There are certain preconditions while calculating your capital gains. According to tax law provisions of the land, a restoration cost would not be allowed to be deducted from an individual’s income, unless he or she has earned from that work of art, say by renting it out to a gallery or an exhibition venue.

Only in such a scenario, the amount spent on restoration could be claimed as a deduction from the income made. If you are not able to claim the expense, such restoration cost could probably be claimed at the time of sale, as a cost of improvement.

However, you should be able to substantiate the fact that the painting was indeed in a damaged condition when you actually bought it, and its value has been enhanced through by restoration. The restoration cost of an artwork- essentially being a cost of improvement - would be considered eligible for indexation. And this is from the year in which the cost was incurred.

Now let us look at another finer aspect of the cost of maintenance. If you store any work in a vault, is it possible to claim its storage expenses for deduction purpose? Such expenses are in a way expenses of holding on to your asset. They do not actually contribute to its enhancement or improvement or earning of income from the asset in any way.

So storage costs are normally not considered for a deduction either from your normal income, or from both short term or long term capital gains earned out of its sale.