NAC361.034. Calculation of interest payments on art indebtedness.

     1. For a work of fine art that was acquired with a portion of the proceeds of a secured or unsecured indebtedness, the amount of the interest on the total indebtedness that the taxpayer may claim as interest payments made on the art indebtedness pursuant to subparagraph (1) of paragraph (a) of subsection 1 of NAC 361.032 must be calculated for the fiscal year for which the taxpayer is claiming an exemption for the work of fine art by applying the applicable rate or rates of interest to the amount of the art indebtedness. The interest payments must be recalculated each time that:

     (a) A payment is made towards the principal of the total indebtedness;

     (b) A draw is made against the principal of the total indebtedness; or

     (c) The principal of the total indebtedness is increased or decreased in any other manner.

     2. For the purposes of the calculations required by subsection 1:

     (a) If the principal of the total indebtedness is reduced by a principal payment or in some other manner, the principal of the art indebtedness must be reduced as follows:

Total amount of the art indebtedness before payment or other reduction	X	Amount of principal payment made or other reduction of the principal of the total amount of the indebtedness	=	Reduction in the principal on the art indebtedness
Total amount of the principal of the indebtedness before payment or other reduction

     (b) The amount of the interest payments for the art indebtedness must be determined as follows, after reducing the total amount of the art indebtedness by any reduction in principal calculated pursuant to paragraph (a), reducing the total amount of the principal of the indebtedness by the principal payment or other reduction and increasing the total amount of the principal of the indebtedness by the amount of any increase in the total amount of the principal of the indebtedness:

Total amount of the art indebtedness	X	Interest accrued on the total amount of the indebtedness	=	Amount of interest accrued on the art indebtedness
Total amount of the principal of the indebtedness

     3. If a taxpayer, or a subsidiary or affiliated entity of the taxpayer, incurs interest expenses on indebtedness, a portion of the proceeds of which were used to acquire a work of fine art, the burden for appropriately allocating the principal payments and interest expenses for the work of fine art between the taxpayer and the subsidiary or affiliated entity of the taxpayer and between the work of fine art and the other items acquired with the proceeds of the indebtedness is on the taxpayer who is claiming an exemption for the work of fine art pursuant to paragraph (j) of subsection 1 of NRS 361.068.

     4. If, for the purposes of claiming an exemption pursuant to paragraph (j) of subsection 1 of NRS 361.068, a taxpayer acquires a work of fine art using the proceeds of an indebtedness, the taxpayer must incur the indebtedness for the work of fine art within 120 days after the acquisition of the work of fine art unless the Department agrees to an extension of time.

     5. To qualify or remain eligible for an exemption pursuant to paragraph (j) of subsection 1 of NRS 361.068, a taxpayer who wishes to refinance the outstanding amount of the indebtedness incurred to purchase the work of fine art must be able to trace the new debt directly to the repayment of the prior debt.

     6. As used in this section, “art indebtedness” means the amount of the principal of the total indebtedness attributable to the acquisition of the work of fine art.

     (Added to NAC by Tax Comm’n by R047-01, eff. 12-17-2002)