If you are a collector, and not a dealer, donating to a public charity from your collection instead of your bank account or investment portfolio can be a wise tax move. You can avoid the capital gains tax you would have incurred on a sale when you donate appreciated property held for more than 1 year. Your tax savings will be even greater because long-term gains on collectibles are subject to a higher maximum rate (28%) than other long-term gains on property, which is 15% or 20%, depending on your tax bracket. You also avoid the 3.8% Medicare tax and may save state income taxes. However, there are adjusted gross income limitations and you should consider alternative minimum tax consequences.
Choosing the appropriate recipient is critical to achieving the best result. The item must be consistent with the charity’s mission for you to receive a deduction equal to fair market value rather than your basis in the collectible, such as art to a museum. Only gifts to public charities (not private foundations) qualify for this favorable treatment.
It’s critical to substantiate the donation properly, which may include an appraisal. If you donate property with a collective value of $5,000 or more, you’ll need a qualified appraisal. Should the collective value of artwork be $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.
Questions? If you need assistance ensuring you are maximizing your tax deduction, please contact us.
Hal Zemel, a Tax Principal at Berdon LLP, has more than 20 years in public accounting and advises businesses in the real estate, service, and manufacturing sectors.