In June, regulatory filings show, Mr. Lauder entered into a sophisticated contract to sell $72 million of stock to an investment bank in 2014 at a price of about 75 percent of its current value in exchange for cash now. The transaction, known as a variable prepaid forward, minimizes potential losses for shareholders and gives them access to cash. But because the I.R.S. does not classify this as a sale, it allows investors like Mr. Lauder to defer paying taxes for years.
Wow, cash now and no taxes, sounds great! But it gets better:
His stake in Estée Lauder Companies, according to regulatory filings, is valued at more than $600 million. Nearly $400 million of that stock is pledged to secure various lines of credit. Many financial planners consider it imprudent for principal shareholders in a company to borrow against their stock. But it remains a popular way for wealthy taxpayers to get cash out of their holdings without selling and paying taxes.
Yes, wealthy shareholders (and even poor ones, if they so chose but with minimal comparative benefit) can borrow against their stock without recognizing any gains currently (kind of a more advanced rich person version of the home equity loan/HELOC).
And there is no limit on the amount of property taxes that can be deducted from federal income. So Mr. Lauder is entitled to deduct the $400,000 he pays annually on his Palm Beach mansion as well as what he pays on his home on Park Avenue and his holdings in the Hamptons.
So that is what all the “second” homes are for! But what about that Renoir or Picasso? You get a benefit there too:
As all art collectors may, Mr. Lauder is entitled to deduct the full market value of artworks donated to museums. (For years, Mr. Lauder availed himself of a quirk in the tax code that allowed donors to take a deduction for donating a portion of an artwork, without actually turning over the art. That break, known as fractional donation, was eliminated in 2006.) The tax code also allows artwork in offices to be deducted as a business expense.
But tax breaks may not be the only motivator: Sheldon Cohen, a former I.R.S. commissioner, said: “If an art collector makes significant contributions, and the public actually gets access to the works they are donating, then the major thing the collector gets is prestige and social status.” It must be nice (and rare) to get a tax break and a juiced public image!