Many high-net-worth individuals have diverse interests, which may include collecting valuable items, such as artwork, jewelry, vintage automobiles, stamps, coins, wine, etc. While most people are motivated to start collections due to a specific interest or passion, a secondary benefit is that these items often grow in value over time. Just like any other investment, it is important to understand the costs involved and take steps to protect the value of these items. The following tips can help.
#1 – Plan for the expenses associated with your collection.
The most obvious cost many collectors face is the initial purchase price of the items in their collection. This cost can be impacted by the type of item as well as its condition and rarity. Buyers are often charged a premium when they purchase items at an auction house; however, this added expense may be worth the peace of mind that comes with knowing the item has been independently verified as authentic.
In addition to the purchase price, it is important to plan for the ongoing costs of maintaining a collection, which can include the following:
- Physical protection –Valuable items must be kept in a secure location that is protected from potential damage, such as theft, water, storms, heat and fire. Depending on your collection, this may involve creating a temperature-controlled environment, investing in a security system, purchasing a safe, etc.
- Ongoing maintenance and restoration –As time passes, items in your collection may require cleaning, maintenance and more significant restoration. Depending on the type of objects you collect, these expenses can quickly add up. Be sure to understand the type and cost of ongoing maintenance in advance so that you can plan accordingly.
- Insurance –In addition to ensuring your collection’s physical safety, it is also important to maintain adequate insurance to cover the financial impact of loss, damage or theft. You can either add additional coverage to your existing homeowner’s policy or purchase separate coverage. Most insurance companies require periodic appraisals to verify the value of your collection.
#2 – Understand how your collection may impact your taxes.
An often-overlooked aspect of collecting is the potential tax implications of maintaining physical assets, which may include the following:
- Capital gains tax –Many collectors are surprised to learn that the maximum long-term capital gains tax on collectibles is higher than the maximum rate on other investments, such as stocks, bonds and real estate. Collectibles may be taxed at long-term capital gains rates of up to 28%, while traditional investments are taxed at a maximum 20% rate.
If you sell a collectible you have owned for less than a year, any profit is taxed as ordinary income, based on your current income tax bracket.
- Net investment income tax (NIIT) –Depending on your adjusted gross income, you may be subject to a 3.8% NIIT tax on any gains you receive from selling a collectible. In 2025, the adjusted gross income thresholds are $250,000 for married couples filing jointly and $200,000 for single filers. If your income exceeds this amount, you may be subject to NIIT on your sale.
- Gift and estate tax –It is important to note that the value of your collectibles is included as part of your lifetime gift and estate exemption amount. In 2025, the exemption is $13.99 million for individuals, or $27.98 for married couples filing jointly.
#3 – Incorporate your collection into your estate plan.
Incorporating your collection into your estate plan is an important step in helping to ensure it is passed down according to your wishes. You will want to:
- Make sure your loved ones know why you collect –If you plan to leave your collection to your heirs, be sure to communicate the sentimental value and why you are passionate about your collection. Doing so can help them appreciate your legacy and maintain it for future generations.
- Choose an executor –It is important to designate a trusted representative who has experience managing collections similar to yours. Your executor will take possession of the items following your death and will need to ensure they are safeguarded and maintained. He or she will also be responsible for coordinating appraisals and distributing the items according to your wishes. Your estate should provide enough liquidity to ensure your executor can pay the expenses of storage, preservation, appraisals, etc.
- Consider a charitable donation –If your loved ones do not share a passion for your collection, it may make sense to donate it to charity so that others can enjoy it. Doing so provides a tax deduction and allows you to avoid capital gains tax on the sale. If you bequeath the collection to charity in your estate planning documents, the collection’s value will not count toward your lifetime gift and estate exemption amount. If you leave your collection to a university or museum, it is wise to obtain a gift tax agreement that ensures both you and the recipient agree on how the collection will be used.
If you could use some help navigating the financial planning challenges of your collectibles, we would love to have a conversation. To learn more, please contact us.
