Turning your collection into cash.

• Author: Cloutier, Cheryl L.
• Position: Art collections - Personal Financial Planning

Want to save money on your taxes and do some good for others? Donating art, antiques or collectibles to charity is a great way to do both. Most people thin of a charitable donation as cash, but donating property allows you to stay liquid and still reap the benefits of the charitable deduction. That's an especially big advantage in an uncertain economy or a volatile marketplace.

Plus, for many serious collectors, holding art and collectibles can be extremel costly because of expenses like insurance and security costs, which continue to increase astronomically. These expenses aren't deductible unless you can show the Internal Revenue Service you bought the items for investment purposes. Even when you can, the IRS classifies the expenses as miscellaneous itemized deductions, so they're subject to 2 percent of the adjusted-gross-income floor. In other words, they're deductible only when these expenses plus your other miscellaneous deductions, such as tax-preparation fees, exceed 2 percent of you AGI for the year. So if you're collecting only for investment reasons, you may reap greater tax and personal benefits by donating your collection to a public charity that can use the property for its tax-exempt purposes.

By donating, say, an Impressionist painting or your collection of rare coins, you can convert long-term capital-gains property into cash by reducing your income-tax liability for it, and you won't have to recognize any gain on the appreciation or pay out any cash for donations. On top of all that, you'll also reduce your potential estate-tax liability by removing the property from your estate.

Donating property you've owned for more than a year usually generates a charitable deduction equal to the object's fair market value. However, if you donate the art to a charity that doesn't intend to use it for exempt purposes, or if you've held the property for less than a year or it's ordinary-income property, your deduction amount is limited to the equivalent of your cost basis in the property. One note: The IRS considers most art and collectibles capital-gains property. However, if art or collectibles are your business, they're part of your inventory -- in other words, ordinary-income property.

The type of objects you own and the organization to which you contribute them limits the total deduction you're allowed in any one year. The maximum annual charitable deduction is 50 percent of your contribution base. For practical purposes, unless you...