When it comes to giving generously, cash doesn’t have to be king. You can donate time, money, stocks, even property like your art or car collection. But why give away a collection you’ve built and enjoyed over the years? In some cases, your heirs may not be as passionate about your passion investments or hesitate to take on the upkeep of a sizeable collection. So you may consider donating the property instead of bequeathing it. The good news is that, in many cases, donating tangible property allows you to enjoy a tax deduction as well as the feeling of sharing something you love with others.
Of course, there are some IRS rules to consider, so it’s a good idea to talk to both your tax professional and financial advisor – as well as your designated charity and an appraiser – before donating your collection of art, antiques, collectibles, jewelry, vehicles or other tangible property.
Keep in mind, though, that collectibles generally come with ongoing expenses – for storage, insurance and maintenance. So, before you crate up the Van Goghs, consider:
Your family doesn’t want the collection, but who does? Current tax laws favor donations to public organizations that can make use of the items (e.g., art to museums and rare books to a university library). It’s called related use.
In order to maximize your charitable deduction benefits, the qualified organization must also be a public charitable organization. If you donate to a private foundation, you’ll likely be limited to deducting your cost basis rather than full fair market value, which may have increased since you purchased the pieces. Gifts to charity or donor advised funds for non-related use are deductible at the lesser of the cost basis or fair market value.
Before you wheel over your car collection, find out what kind of property your chosen charity is willing to accept and under what conditions. Museums may not be interested in the upkeep, storage and maintenance of vintage vehicles, for example. And they may only want the most important items in your collection. This may be a time to set aside your ego, look at your collection critically and decide if selling some of the lesser works might be better used to fund an endowment to preserve the remaining pieces for generations to come.
Think how hard it is to relinquish your favorite comfy chair to charity. It only gets harder when the items have considerable monetary value, too. You may be inclined to put some restrictions on how the property can be used (whether it must hang in the permanent collection or be included in the catalogue) or impose conditions on its future sale. However, retaining too much control could mean the transaction will no longer be considered a gift for tax purposes, or that the recipient may need court approval to change the terms of the agreement after you pass away. An unrestricted gift agreement between you and the donee is essential if your intention is to truly benefit the recipient.
Valuations can be disputed, so get an independent, qualified appraisal for anything that may be worth more than $5,000. If the item’s value is less, there are several online sources to help you determine fair market value for your donated goods. Don’t forget to get a written receipt acknowledging the donation and its value. And if you’re donating something worth more than $50,000, ask the IRS for a Statement of Value before claiming it on your tax return.
Source: thetaxadvisor.com; artbusiness.com; Planned Giving Design Center
Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While familiar with the tax provisions of the issues presented herein, Raymond James Financial Advisors are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.