Bob Dylan Sells Music Catalog, Saves Big on Taxes

Back in December of 2020, musical icon, Bob Dylan sold his entire songwriting catalog to Universal Music Publishing Group for an estimated $300 million. Bob Dylan’s catalog represents a sizeable asset,  containing more than 600 spanning over six decades. Besides his substantial windfall, Dylan also enjoyed an additional bonus on the sale of his catalog: a smaller tax bill. Musicians and artists are privy to a special tax rate on the sale of their self-created works and do not have to pay ordinary tax rates.

How did Dylan save on taxes? Although code section 1221 defines capital assets in broad terms, it does explain what does not qualify as a capital asset. One of the important exclusions is a literary, musical, or artistic composition, meaning the entirety of Bob Dylan’s catalog. However, Code 1221 (b)(3) states that if there was a sale or exchange for self-created works, then those works will be counted as capital assets, meaning that Bob Dylan’s sale of his songwriting catalog was an exception to the exemption.

If Dylan’s catalog indeed sold for $300 million, the 20 percent capital gains tax rate would result in a $60 million tax bill for Dylan. If the sale fell under the ordinary tax rate of 37 percent, Dylan would owe $111 million in taxes, or $51 million more. 

How were Dylan’s works excepted? Many songwriters in the early 2000s argued that it was unfair to make them pay a higher tax rate for selling their copyrights than the publishers who bought and sold said intellectual property commercially did, so the Nashville Songwriters Association International (NSAI) lobbied Tennessee and Kentucky delegates for a change. Due in part to NSAI’s lobbying, Congress eventually enacted the Songwriters Capital Gains Tax Equity Act in the Tax Increase Prevention of Reconciliation Act of 2005. Thanks to the NSAI, Bob Dylan was able to achieve a higher windfall when selling his copyrights.

Talley’s experienced team of tax consulting professionals provide comprehensive tax planning and consulting services so you can preserve, enhance, and pass on the assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

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