Let me begin by stating, very clearly, that I am neither a tax professional, nor even someone who does his own taxes. And before making any decisions about your antiques and art as they relate to your tax situation, you should consult a professional. That said, as an appraiser and consultant, many of my clients need my assistance in tax situations, from appraising items donated to museums or paying an estate tax to Uncle Sam.
The tax implications of buying and selling antiques and art (all considered “collectibles” by the IRS) can be very complex. The overly simplified version is that for collectors (those who buy, but do not sell), your collections are capital assets. As such, when you sell one item, or a whole collection, you will pay a capital gains tax on any profits earned, or you can deduct any losses. Good recordkeeping is important here because you’ll need your cost basis (what you paid) to determine the gain or loss. If you sell inherited antiques, then the cost basis is set with a fair market value at the time of inheritance. This value is usually assigned with an appraisal, either performed at the time of the inheritance, or possibly years later, but with an effective date of the inheritance (a qualified appraiser will be able to do this).
For dealers, of course, antiques are business inventory, and hopefully all dealers are keeping appropriate records and reporting sales, etc. annually. It can be tricky for the large group of folks who are part-time dealers (I’ve heard them called “collector-dealers” or even “bedroom dealers”). Good records are a must so that you know what antiques you kept as business inventory and what you kept for personal use (and thus a capital asset). Confused yet? Take my advice and consult a tax professional, and doing this now, as you are planning for your stuff, will save you (or your family) many headaches down the road.
Perhaps you don’t plan on selling your collection. What else can you do with it? You can always give it or bequeath it to your family or heirs. This, again, requires forethought and planning, and the advice of a tax professional and/or attorney. Depending on the value of an item or collection (and the estate), there is potentially a gift or estate tax to consider. If passing on your collection is your plan (you do have a plan, right?), then talk to your attorney about the most effective and least expensive way to do so.
Finally, there are many generous souls out there who choose to donate antiques and art to museums. We talked last month about the donation process, but there are tax implications as well, and they are good! Any noncash item (such as a blanket chest, a tea service, a painting - you get the idea) donated to a museum (assuming they are a registered nonprofit) qualifies the tax payer for a tax deduction. How does one take advantage of this opportunity? Talk to a qualified appraiser. “Qualified” means an appraiser who has the appropriate education and experience and is compliant with the Uniform Standards of Professional Appraisal Practice (we discussed such folks in detail a couple of months ago).
Your appraiser will be able to provide you with a Fair Market Value appraisal that will form the basis for your tax deduction. You and the recipient institution should work together to ensure that the appraiser has not only access to the item(s) but also all the relevant information about it (them) and about the donation itself (such as the official date of property transfer, which is the best date to use as the effective date of the appraisal) and the tax year in which you’ll be taking the deduction. Depending on the value of the item(s) donated, you may need to submit the appraisal report with your tax return, or you may only need to submit IRS Form 8283 (“Noncash Charitable Contributions), part of which will be completed by the appraiser. A word of advice: the IRS does review tax returns with noncash donation deductions and will, if it deems it appropriate, adjust the amount of the deduction (usually down). A good appraisal will include only solidly substantiated values that can withstand such scrutiny. If donations are in your plan, you might start by reading IRS Publication 526 on noncash charitable donations.
See? I told you taxes and antiques can be complex. Do yourself a big favor and start planning now!