Collectibles: what to do with all this stuff?

What do I do with my collectibles?

Whether it’s artwork, stamps, wine, classic cars, china, or baseball cards of your favorite players from when you were 10 years old, navigating what to do with your collectibles can be a difficult proposition.

Is it a “set” or a “collection?”

When it comes time to pass on your art collection or your baseball cards, there is some appeal to keeping everything together so the recipient can enjoy it in the same way you have.  Some collectibles, known as sets, are indeed more valuable when kept together. For example, your grandma’s china set is more valuable than the sum of its individual parts because the pieces complement each other.  But experts warn not to confuse a set with a collection.  Even if the artwork in your home all comes from the same era, or the same artist, the individual pieces in your art collection are likely more valuable in aggregate when they are separated.  According to Jim Halperin of Heritage Auctions, "almost every collection is worth more broken up."  When selling your art collection, you will probably fetch a higher price overall by putting in the extra work to sell the items individually, whereas selling them together could attract wholesalers looking to buy at a discount and re-sell for a profit.

If you prefer not to sell, the works might avoid collecting dust in the basement or attic if they are separated.  The board of trustees at the art museum is more likely to agree to display one or two pieces rather than your entire collection.  Your niece, the art enthusiast, probably doesn’t have space on her walls for all your artwork.  Thinking ahead and talking to your family, friends, and favorite charities will help you find a happy home for your collectibles.

You thought I wasn’t going to bring up taxes?  Think again!

Donate:

In last September’s newsletter, we talked about the tax benefits and simplicity of giving appreciated stock to charity, but donating art is more complicated.  In order for the donor to receive a deduction for the fair market value of the artwork, it must be used in relation to the charity’s mission (e.g. art donated to a school must be used to educate students).  Further, if claiming a deduction over $5,000, a qualified appraisal is required, and the charity must agree to hold the work for at least three years.  If these conditions aren’t met, the tax deduction is limited to the donor’s basis in the item.  For example, when donating a painting for a charity auction, the donor gets a deduction for what they originally paid for the item, not what it sold for at auction.

Sell:

In the unlikely event that your baseball cards have appreciated in value (and it is unlikely – don’t be like my juvenile self and let the Beckett price guide give you delusions of grandeur), you will owe tax on that gain if you sell them.  The federal long-term capital gains tax rate for collectibles is 28%, which is higher than the tax rate for other capital gains as well as the ordinary tax rate for most taxpayers.  For those in lower tax brackets, it can be advantageous to hold items for one year or less, because short-term gains on collectibles are taxed at ordinary income tax rates.

Bestow:

Collectibles are included in a taxpayer’s gross estate, just like any other asset.  The federal gift and estate tax exclusion is currently over $22 million for married couples, but in Oregon, individual estates over $1 million are subject to estate taxes.  Oregon has no gift tax, so giving away assets during one’s lifetime can reduce estate taxes, while also reducing the hassles that can come with probate.

Above all, collecting is fun! Educating yourself, consulting with experts (or becoming an expert yourself), and planning ahead can make it a more enjoyable hobby.

Stephen A. Paul, CPA