Collectibles such as art,antiques, jewelry,stamps, coins and automobiles may make up a significant portion of your estate. To avoid unnecessary estate taxes, administrative and legal fees, and other costs involved in settling your estate, it’s smart to incorporate these assets into your charitable giving and estate plans.
Valuing the assets:
When planning for the disposition of your collectibles, have a credible appraiser value them. Why? Because an incorrect valuation could subject you to additional taxes, penalties and interest. The value of property for federal gift, estate and income tax purposes generally is its fair market value (FMV), which is why establishing this value is essential.
In instances where gifts or bequests of art are valued at $20,000 or more, IRS auditors may refer the appraisal of the gifts to an Art Advisory Panel of the IRS. The panel’s findings are adopted as the IRS’s official position on the art’s value.
Donating to charity
Gifting art and other collectibles to charity can provide you with significant tax savings. For example, you avoid capital gains taxes. This can be particularly advantageous for collectibles, which are taxed at a 28% long-term gains rate, rather than at the 15% rate that applies to most capital assets. If the charity’s use of the donated property is related to its tax-exempt purpose, you’re also entitled to a charitable income tax deduction equal to the property’s FMV — up to 30% of your adjusted gross income (AGI). Otherwise, your deduction may be limited to your cost basis (up to 50% of AGI). If you donate a painting to a museum for display or to an art school for use in one of its classes, for example, the use is related to the charity’s exempt purpose.
If the charity sells the painting, however, it’s not used for a related purpose, and your deduction may be limited to your basis. If you give away your collection gradually and it continues to appreciate, your deductions will grow with each donation. Giving collectibles away gradually also can help you avoid losing deductions that exceed the 30%-of-AGI limit. Although excess deductions can be carried forward for up to five years, you may lose the deductions permanently if a work or collection is extremely valuable.
If you’d like to keep your collection together but aren’t ready to completely give it up, you can give a fractional gift bydonating an undivided percentage interest in your collection. For example, if you donate a 50% interest in your art collection to an art museum, the museum can display the art for six months each year, and you can deduct 50% of the collection’s fair market value and also enjoy the art for the remaining six months of the year. A bargain sale is another option to consider if you wish to give your collectibles to charity. If you sell appreciated property to Giving Center at a price lower than its FMV, you’re allowed a charitable deduction for the difference between the sale price and the FMV. You must allocate the property’s cost basis between the gift element and the sale element, based on the FMV of each part. You’ll recognize a taxable gain on the difference between the sale price and the cost basis allocated to the sale element, but you won’t be taxed on the gain allocated to the gift element.