22 Nov Should I sell or donate these collectible trains?

Q. My father collected trains and I inherited them. How can I decide if it’s better to try to sell them or donate them? When he died instead of flowers he wanted donations to the hospital where he died.
— Beneficiary

A. We’re sorry to hear about your dad.

The first thing you need to do is figure out how much the trains are worth.

To do this, you should meet with a reputable dealer that specializes in train collectibles, said Jeanne Kane, a certified financial planner with OneDigital in Boonton.

You’ll need an estimate of the value of the collection.

“Collectibles are considered alternative investments by the IRS and include things like art, stamps, coins, cards, comics, rare items, antiques and so on,” Kane said. “Your father’s train collection may be considered a collectible, but you should check with your tax preparer to verify because it could have tax implications for you.”

The trains would be considered an inherited asset. These receive a step-up in basis to the fair market value to your father’s date of death whether they are considered a collectible or not.

They are eligible for preferred long-term capital gains rates as an inherited asset, she said.

“If you decide to sell, if the value has increased since your father’s date of death, you could be subject to a long-term capital gains tax rate of up to 28% as a collectible versus 0%/15%/20% if the collection is considered non-collectible,” Kane said. “Non-collectible investments such as stocks, bonds, real estate, etc. are taxed at the lower rates.”

If you decide to donate the trains and you want a charitable tax deduction, you’ll need to know the collection’s value.

Also research the organization you will donate to.

“Not all charitable organizations are eligible for tax deductions on your contributions,” she said. “The IRS allows tax deduction if the group is registered as a 501(c)(3) or in some cases 501 (c )(4) organization. Know before you donate.”

Then review your tax situation.

Kane said donating collectibles to charity can be a tax-smart way to support a cause while also potentially reducing your tax liability.

But you also have to explore with your tax preparer: If you take a standard deduction on your taxes, will donating the trains bump you above the deduction threshold and allow you to itemize your deductions?

Or if you already itemize your deductions, you’ll want to understand the impact on your taxes as well if you donate the trains.

“If you decide to donate, the IRS will want a record of the value of the deduction if you claim it on your taxes,” she said. “They won’t take your word for it, particularly if it is a large value.”

When you decide to sell or donate an item, it can also come down to an emotional decision, Kane said.

Do you want to donate to a favorite charity of your father’s? One of his favorite collections would go towards helping a favorite charitable cause, she said.

Or would you want to donate the trains to other train enthusiasts who may love them as much as your father did? In that case, you may not get financial benefit but you’ll pass along something that your father loved to others who are like minded.

Or, Kane asked, do you think that he’d want you to use the funds from selling to invest in something that you would enjoy?

It’s lot to consider. Good luck with your choices.

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This story was originally published in November 2024.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.