If you’re a collector, donating from your collection instead of your bank account or investment portfolio can be tax-smart. When you donate appreciated property rather than selling it, you avoid the capital gains tax you would have incurred on a sale. And long-term gains on collectibles are subject to a higher maximum rate (28%) than long-term gains on most long-term property (15% or 20%, depending on your tax bracket) — so you can save even more taxes. It is important to note that taking advantage of the appreciated value may limit the amount allowed as a deduction in the current year due to limitations based on a percentage of your adjusted gross income (AGI).
Most contributions to public charities such as churches, and schools are limited to 50% of AGI. Gifts of capital gain property, including collectibles are limited to the extent total contributions exceed 30% of AGI. Any deduction not allowed due to limitation in the current year can be carried over for five years. However, if your collection has minimal appreciation, you may elect to deduct the basis of the contribution rather than the fair market value thus allowing the contribution up to the 50% of AGI limitation.
When gifting collectibles it is important to choose the charity wisely. In order to receive a deduction equal to fair market value rather than your basis in the collectible, the item must be consistent with the charity’s purpose, such as an antique to a historical society.
Properly substantiating the donation is also critical, and this may include an appraisal. If you donate an item or items with a collective value of $5,000 or more, you’ll need a qualified appraisal, and if the collective value of artwork is $20,000 or more, a copy of the appraisal must be attached to your tax return. If an individual item is valued at $20,000 or more, you may also be required to provide a photograph of that item.
If you’re considering a donation of artwork or other collectibles, contact us at 703-385-8888 or email@example.com for help ensuring you can maximize your tax deduction.