If you buy, sell, shop, trade, or collect antiques, money is always a factor. Taxes have an impact on your bottom line. Reducing taxes can make you money. So, as you do your tax prep, you need to know key information about your art and antiques. Understand the three types of values used with antiques.
While we all know that when we sell something valuable we may be hit with capital gains tax, there are some creative ways to reduce your tax responsibility. Here are some tips to consider. Please check with your tax professional as to how these tips pertain to your specific tax situation.
You can get a tax deduction for a donated item’s full value up to 30% of your adjusted gross income. If you donate a collection while you are still alive, you have to donate it in the correct way. What does that mean? There is a right way and a wrong way to donate a collection. Oh, so you say that you may not know how to donate it correctly? The donation must be for related-use in order to get the biggest tax deduction for your donation of art, antiques or other collectibles.
Here it is in plain English: If you are gifting a work of art to a charity that is typically not in the business of displaying artwork, then that is not something called a related-use donation. If you give a non related-use donation, then you can’t get the full tax benefit for your donation. On the other hand, if you donate your art to an organization or charity that displays art on a regular basis, then that is a related-use donation and you can command a better tax deduction for your donation. Get it?
When making any donation, a complete collection donated together will be valued higher by an expert appraiser and by the IRS. If the objects in a collection are donated piecemeal or individually, then the collection value is not factored into the donation equation.
2. Start Early
When it comes to connecting art and antiques and your taxes, it is a good idea to start early and get all of your information organized in plenty of time to get your taxes done by the deadline. Get appraisals early. Read other reasons you need appraisals. One thing that many people don’t know is that if you want to make a donation and take the value of that donation as a tax deduction, the required appraisal needs to be completed within 60 days of you making the donation to the charitable organization. If you have the appraisal but don’t make the donation within 60 days of the date on that appraisal, then you will be required to get an updated appraisal for tax purposes.
Organize your objects, gather receipts or other important papers that relate to your art, antiques, or collectibles and put them together for easy review. As always, it is wise to update your appraisals every 3-5 years so, you will always have updated appraisals and evaluations. Don’t wait until the last minute to get your house in order. I help people get their stuff in order all the time. See the options I offer.
If you want to pass on collectibles through your will, consider how your heirs will cover their estate tax burden. You may consider buying life insurance housed in a trust to pay future estate taxes. Always consult with your tax advisor or accountant before making any important financial decisions.
If you are thinking about leaving your collection to an heir or to multiple heirs like children, grandchildren, relatives, friends, then you need to know about the new tax information that has been recently introduced. This news is good news! It’s really good news if you act fast.
The Tax Cuts and Jobs Act of 2017 offers massive tax savings for qualifying individuals. The new Tax Cuts and Jobs Act law increases the estate tax exemption to $11.2 million for an individual and $22.4 million for a married couple. Consider giving away assets to heirs up to this new higher level. You may want to do that over the next 5 years since this estate tax exemption will expire in 2025.
My expertise in advising clients about investing in art and antiques makes me an expert on advising you on what is valuable and how to get the correct type of appraisal. So, in my opinion, investing in fine art, furniture like Eastlake Furniture, specialty wines and spirits, and precious metals including jewelry and costume jewelry will be a good move. These are just some of the antiques that have shown to have maintained their value the best in the long run and increased in value the most over time. So, even if you aren’t thinking about investments and are shopping for antiques just for the fun of it, consider the three most valuable antiques for value.