How Collectibles Are Taxed

Gains on collectibles held a year or less are taxed as ordinary income, with a top rate of 37%, putting them on a par with securities. Gains on collectibles held longer than a year, on the other hand, are taxed up to 28%—as opposed to 0%, 15%, or 20% for securities, depending on your income. (High earners may also face an additional 3.8% net investment income tax, which could push total taxes on appreciated collectibles to 40.8%.)

"What's more, you can deduct a loss only if you treated the item as an investment—for example, by lending it to a museum or keeping it properly stored, rather than just displayed for your personal use," says Austin Jarvis, director of estate, trust, and high-net-worth tax at the Schwab Center for Financial Research.

Fortunately, you may be able to use net losses from noncollectible investments to offset net gains from collectibles. "A qualified tax advisor can help you strategize how to use the netting process to your advantage," Austin says.

Neither you nor your heirs will owe capital gains taxes on the appreciation that occurred during your lifetime, since the assets will receive a step-up in cost basis to their fair market value upon your death.

However, if you're concerned your estate may exceed the estate tax exemption ($13.99 million per individual in 2025), you might consider transferring the collection to an irrevocable trust for the benefit of your heirs. Doing so removes the asset and its future appreciation from your taxable estate—but you also lose control of the asset because the trust, not you, now owns it.

"If you don't want to give up access to the collection, you could potentially rent it back at a fair market rate," Austin says.

Collectibles gifted to a public nonprofit during your lifetime may qualify for a tax deduction while also removing them from your taxable estate—though a deduction of more than $5,000 will require a qualified appraisal.

If you want to continue enjoying the collection while you're alive, you could instead donate the assets to a charity as part of your estate plan, which will reduce your taxable estate by the assets' fair market value at the time of your death.

But if you'd like your heirs and chosen charities to benefit from the assets, you might consider transferring the collection into a type of irrevocable charitable trust known as a Flip Charitable Remainder Unitrust (Flip CRUT).

A Flip CRUT starts out as a net income unitrust that pays out annually either the trust's net income or a percentage of its fair market value, whichever is less.

Because collectibles produce little if any income, the trust typically doesn't generate taxable distributions during the net income phase. Instead, the trust's assets can potentially appreciate until a triggering event, such as a sale, "flips" the trust to a standard CRUT—which pays beneficiaries a fixed percentage of the trust's fair market value for a set term or for life, after which the remaining assets transfer to the charitable beneficiary.

Be aware, however, that if your income beneficiaries are anyone other than you or your spouse, gift taxes may apply.

"Managing a valuable collection can be complex," Austin says. "An experienced estate attorney or an advisory specializing in collectibles can help you determine the right course of action."