Of course, you should ask your tax advisor for guidance regarding your specific situation. This page is intended only as a short summary of the basic tax rules, and is no substitute for specific advice from a qualified tax advisor. Remember, you are eligible for a charitable deduction only if you itemize your deductions, rather than claiming the standard deduction. See below for a comparison of the financial implications of donating to the museum versus selling your collection.
Basic Income Tax Deduction Rules
Because the American Baseball Card Museum uses baseball cards in its collection for its tax-exempt purpose, the donor may deduct the gift's fair market value if he has held the card for more than one year. The charitable deduction is limited to 30% of the donor's contribution base (generally, the donor's adjusted gross income or AGI) in the year of the gift. Any unused charitable deduction may be carried over for up to five years following the year of the gift. (If you choose to deduct on your income-tax return only your cost basis, then you may deduct in the year of the gift up to 60% of your contribution base with a carry-over of any unused deduction for up to five years.)
The unrealized gain is never recognized. In other words, the donor may deduct the full fair market value, yet does not report any gain from the increased value of the card over its cost basis.
Substantiation of Gifts
After we accept your donation, we will give you a contemporaneous written acknowledgement of your donation, which meets the IRS requirements. This acknowledgement is necessary for you to claim the federal tax deduction.
Do I need an appraisal?
If the tax deduction exceeds $5,000, you must also obtain an appraisal from a qualified appraiser of baseball cards. Contact us and we will help you find a qualified appraiser. If the deduction is greater than $500, you must file Form 8283 with your income tax return.
Example 1 -- Hank Aaron Card: Hal has a 1965 Topps Hank Aaron card that he acquired in 1965 in a 5 cent pack. He since had the card graded at a cost of $20. Therefore his cost basis is $20.01. The card is now worth $100.
Hal donates the Hank Aaron card to the American Baseball Card Museum and it is accepted as part of the collection. Assuming that Hal's AGI is $50,000 and he itemizes his deductions, Hal may deduct that card's fair market value of $100 as he is well within the 30% of AGI limitation.
Example 2 -- Card Collection: John has a collection of vintage baseball cards. His cost basis for the collection is $400,000 and the collection's fair market value is now $1,000,000. John gifts the collection to the American Baseball Card Museum. Assuming John's AGI is $800,000, what can John deduct on his income tax return?
John may deduct the fair market value of his collection--$1,000,000. However, he is limited to a $240,000 deduction in the year of the gift (30% of his $800,000 AGI). The $760,000 unused deduction may be carried over for up to five years, subject to the 30% limitation each year. Alternatively, John may choose to deduct only his $400,000 cost basis, and so he could deduct the entire $400,000 in the year of the gift (less than 60% of $800,000 AGI). He would not have any deduction left to carry-over to later years.
Deduction Limited for Dealer's Inventory
Different tax rules apply to dealers. Dealers have inventory--cards offered for sale in the ordinary course of a trade or business. The IRS might consider you a dealer, even if you don't. For example, if you acquire a large number of cards at bargain prices, hold them for one year to obtain long-term capital gains status, and then immediately gift them to charity, then the IRS may consider you a dealer. The charitable deduction for gifts of inventory is limited to the cost basis.
Estate-Tax Charitable Deduction
A bequest of cards to the American Baseball Card Museum should qualify for the federal estate-tax charitable deduction. This means that the cards so bequeathed are effectively free of federal estate tax. There is no requirement for this deduction that the cards be used by the Museum related to its tax-exempt purpose.
For most estates under $12,920,000 there is no federal estate tax. In those cases, your family may be better off if you or your heirs instead obtain an income-tax deduction for a lifetime gift of the cards. To qualify, you must make the donation while you are still living, or you could ask your heirs to donate the cards after they inherit them from you. Check with your tax advisor to learn what is best for your family.