Tax matters on collectibles and art 1 1

[Stefanomjr]

So sat through a webinar on collectibles/art tax matters and thought I'd share some slides:

Expenses/losses/gains depending on if you're a dealer, investor, collector or creator.

 

Discussed creating a museum (private operating foundation) to transfer your art. Helps keep control and avoid capital gains tax or estate tax

Also, old-school gifting your art. An interesting twist by transferring the art to a family limited partnership or LLC and then since you dont give away full control of the art all at once you can apply a discount rate to the fair market value. (probably only applies to the folks holding FM DKR pages).

 

One thing I didn't realize is that if a creator donates a work of art they created they only get to deduct their COST - so all that great Bill Watterson art that he will one day donate will get valued at COST.

 

I thought it was interesting.

Edited May 21, 2021 by Stefanomjr
typo - clarification

[Rick2you2]

I wonder how many people have businesses with their offices showing off comic art?🤨

[Stefanomjr]

30 minutes ago, Rick2you2 said:

I wonder how many people have businesses with their offices showing off comic art?🤨

So much of everyone's collection is stored in closets and cabinets. During COVID I tried to look for any comic art hanging on walls behind people on Zoom calls. Maybe saw one. 

Will say this, as much as you dont want to treat the hobby as an investment there are tax breaks for investors that aren't available to collectors. How the IRS or your state determines how you fall in one category or the other is beyond me. Assume IRS will look at intention - did you act like an investor? Did you deduct cost of insurance or miles for trips to conventions etc etc etc.    

[PhilipB2k17]

The way Congress treats small time collectors of collectibles is criminal, IMHO. How about exempting the first $25,000 in annual realized capital gains for long-held collectibles from taxation? If you hold it for at least 5 years, you get the first $25,000 in total gains on all collectible sales or trades tax free.

 If you sell your bike for a “profit” at a garage sale, you can get taxed on that stuff. It’s really stupid. 

Edited May 21, 2021 by PhilipB2k17

[Rick2you2]

6 hours ago, Stefanomjr said:

So much of everyone's collection is stored in closets and cabinets. During COVID I tried to look for any comic art hanging on walls behind people on Zoom calls. Maybe saw one. 

Will say this, as much as you dont want to treat the hobby as an investment there are tax breaks for investors that aren't available to collectors. How the IRS or your state determines how you fall in one category or the other is beyond me. Assume IRS will look at intention - did you act like an investor? Did you deduct cost of insurance or miles for trips to conventions etc etc etc.    

I was thinking more along the line of a dubious office expense, which is never seen again on the books.

[vodou]

6 hours ago, Stefanomjr said:

...as much as you dont want to treat the hobby as an investment there are tax breaks for investors that aren't available to collectors.

I don't know how anybody that's put more than 10k into this "hobby" before 2015 couldn't. Or rather - to not is just dumb. Unless it was commissions...then I can't help you at all  

[cstojano]

Can a smart person explain this to a child for me. I assume the ltcg means you can still subtract your cost to acquire the item from the sales price.

Why 28% + 3.8%. What's the difference in the percentages. 

Expenses I assume would be insurance mostly. What about restoration? Or framing?

Losses, if I sell two pieces and one gains 1k and the other loses 1k does this mean you still owe tax on the 1k gain?? 

[Stefanomjr]

10 hours ago, cstojano said:

Can a smart person explain this to a child for me. I assume the ltcg means you can still subtract your cost to acquire the item from the sales price.

Why 28% + 3.8%. What's the difference in the percentages. 

Expenses I assume would be insurance mostly. What about restoration? Or framing?

Losses, if I sell two pieces and one gains 1k and the other loses 1k does this mean you still owe tax on the 1k gain?? 

Your long-term capital gain (LTCG) is your proceeds, less acquisition cost.

28% is the capital gain rate for collectibles/art and the 3.8% is the Obamacare surcharge for Medicare. 

Expenses are anything you can't capitalize (add to the cost basis of the art) and would include insurance, mileage to conventions, framing, storage materials. Restoration, I would argue, is a one-time cost (see how I used "cost" and not "expense") and would be added to the cost basis of the art being restored.  

Good question. I assume that you get to net the gains and losses from the same year. So in your example if have a gain and loss in the same year that net to zero you pay taxes on zero gain. However, if you net a loss for a year, sell one for 1k gain and one for 2k loss - you cant take any of the 1k loss against your adjusted gross income.  

[shadroch]

22 hours ago, PhilipB2k17 said:

The way Congress treats small time collectors of collectibles is criminal, IMHO. How about exempting the first $25,000 in annual realized capital gains for long-held collectibles from taxation? If you hold it for at least 5 years, you get the first $25,000 in total gains on all collectible sales or trades tax free.

 If you sell your bike for a “profit” at a garage sale, you can get taxed on that stuff. It’s really stupid. 

Why?      Why should the working man pay taxes on his sweat and blood but you get to make more money tax free?

Shouldn't it be the other way around? Your first 25,000 of earned income should be tax free 

[cstojano]

3 hours ago, Stefanomjr said:

Your long-term capital gain (LTCG) is your proceeds, less acquisition cost.

28% is the capital gain rate for collectibles/art and the 3.8% is the Obamacare surcharge for Medicare. 

Expenses are anything you can't capitalize (add to the cost basis of the art) and would include insurance, mileage to conventions, framing, storage materials. Restoration, I would argue, is a one-time cost (see how I used "cost" and not "expense") and would be added to the cost basis of the art being restored.  

Good question. I assume that you get to net the gains and losses from the same year. So in your example if have a gain and loss in the same year that net to zero you pay taxes on zero gain. However, if you net a loss for a year, sell one for 1k gain and one for 2k loss - you cant take any of the 1k loss against your adjusted gross income.  

Thanks for this response. Boy it would sure by nice if eBay and Paypal had an easy way to download you complete history and included things like auction titles. I know eBay does this to an extent but with all the reporting it would sure be nice to have a one click download of my history from 1998. Some of the stuff I have is so old that I have no idea how to document cost basis.

Would a normal tax accountant be up on this or is this a bit of a niche? Maybe not after the last couple of years it won't be.

[Stefanomjr]

1 hour ago, cstojano said:

Would a normal tax accountant be up on this or is this a bit of a niche? Maybe not after the last couple of years it won't be.

Should be easy to research. 

[PhilipB2k17]

7 hours ago, shadroch said:

Why?      Why should the working man pay taxes on his sweat and blood but you get to make more money tax free?

Shouldn't it be the other way around? Your first 25,000 of earned income should be tax free 

It is tax free. A married couple filing jointly gets a ~$25K personal income tax exemption.