Are you considering selling or donating your collectibles that you feel are of value? You’ll want to be sure to first consider the tax implications that parting with selling or donating these collectibles may have for you.
The term “collectible”, as defined by the IRS, includes works of art, rugs, antiques, metals (such as gold, silver, and platinum bullion), gems, stamps, coins, or alcoholic beverages.
Selling Your Collectibles
Other than those held for sale by dealers, the IRS views most collectibles sold by private collectors as capital assets. As a result, any gain on the sale of a collectible that you’ve had in your possession for more than one year is generally treated as a long-term capital gain.
While long-term capital gains on many types of assets are taxed at either 15% or 20%, capital gains on collectibles held for over a year are taxed at an even higher rate of 28%.
However, collectibles owned for one year or less, similar to any other asset held short-term, will typically be taxed at your ordinary income tax rate.
Similar to owning and selling stocks, determining the gain on a sale requires you to first determine your “cost basis”. Generally speaking, the cost basis is the dollar value of the collectible at the time it came into your possession.
If you purchased the item, your basis is the amount you paid for the item, including any brokers’ fees. If you inherited it, your basis is its fair market value at the time you inherited it. The fair market value can be determined in several ways, such as by an appraisal or through an analysis of the prices obtained in sales of similar items at about the same time.
Donating Your Collectibles
If you decide donating your collectibles is the best option, your tax deduction will likely depend both on its value and on the way in which the item will be used by the qualified charitable organization receiving it.
For you to deduct the fair market value of the collectible, the donation must meet what’s known as the “related use” test. Related use requires that the charity’s use of the donated item must be related to its mission. An example of this would be if you donated a collection of political memorabilia to a history museum that then puts those collectibles on display.
Conversely, if you donated the collection to a hospital which then sold the collection, the donation likely wouldn’t meet the related use test. Instead, your deduction typically would be limited to your basis.
Disposing of your collectibles can be complicated as there are a number of other rules that may come into play when selling or donating these items. Check with your Untracht Early advisor to discuss the nature of the collectibles you’re selling or giving away so that we can help you handle the transaction and the tax implications associated with it.