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What do you need to know about collectibles in estate plans?

On Behalf of | Sep 8, 2022 | Estate Planning |

Collectibles could slow down probate in New York, especially if some of them don’t have a fair market value available. IRS collects taxes on the sale of collectibles, including when a beneficiary sells what they inherited. Testators will want to consider the potential tax impact on passing on these assets.

Estate and gift tax

Collectibles and artwork are subject to estate and gift taxes. Knowing the true value of your collectibles and their tax implications is important for better estate planning and administration. Some people decide that it makes more sense for them to sell their collectibles. Others choose to pass them on to charities. You could also pass them on to your loved ones.

Intentions

You may want to discuss with your loved ones which collectibles of yours they would want to hold onto for sentimental reasons and which they would sell. This could help you in making decisions on how to distribute your assets.

Capital gains tax

When you sell a collectible at a profit, you may need to pay capital gains tax to the federal government. If you sell the asset after more than a year of ownership, then the capital gains tax rate is 28%.

What counts as collectibles?

The federal government classifies artwork, metals, gems, antiques, stamps and coins as collectibles. Old alcohol could also count as a collectible under tax law. Basically, any item that has rare intrinsic value in the market is a collectible.

Basis

You need to know the “basis” of a collectible when you sell it. The basis is the non-taxable portion of the item. It’s usually the purchase price plus broker fees plus transaction fees. For those who inherit a collectible, the basis is the fair market value of the item at the time of inheritance. When the fair market value isn’t easily ascertainable, the estate will have to get a professional appraisal of the value of the item.

Collectibles aren’t as easy to pass on to beneficiaries because they may have to pay taxes based on the fair market value at the time of inheritance. It’s challenging to anticipate how valuable the item will be.