Jared Green, VP of Business Development of Heritage Auctions recently sent out this email to clients on offsetting stock losses with gains on collectibles, fine art and antiques. A fellow appraiser thought it would be a good post to the AW Blog and I agree. I cut and pasted directly from the Heritage Auction email.

Today I also received in the mail the Heritage magazine, although I have yet to read it. Heritage is really promoting its services to the public with aggressive marketing in a tough economy. You certainly have to give them credit.

The Heritage Auction website is www.ha.com.

The email to clients follows:

Many of our clients have recently inquired about whether their stock losses could be used to offset gains on collectibles. I wanted to provide you with information recently given to us by our CPAs because I think you may find it particularly relevant and valuable as this fiscal year ends.

Generally, losses taken in the stock market this year can indeed be offset by gains from the sale of collectible assets (including jewelry, coins and fine art). Please note that we are not in the business of giving tax advice and you should consult with your own tax advisor before taking any actions, but if you have collectibles, jewelry or art with a low or below-current-market cost basis and have owned them for at least 12 months prior to the sale date, you may be able to use your stock market losses to offset your tax gains on those sales, as follows:

Capital gains on collectibles owned for at least one year are federally taxed at 28%, and are allowed to be offset by stock losses, but you have to follow very specific netting procedures. The basic capital gain netting procedures provide that within a given tax grouping such as those subject to 28%, 25%, 15% tax rates, gains and losses are netted in order to arrive with a net gain or loss for the grouping. Then the following netting and ordering rules apply:

1. Short term capital losses are applied first to offset short term capital gains that would be taxed at ordinary income tax rates. Then any overall net short term loss is used to offset any net long term capital gains from the 28% group. Any remaining short term losses are then used to reduce gains for other tax groups.
2. Net long term losses in the 28% group (includes collectibles) is used first to reduce gain from the 25% group, then to reduce the 15% group. A net loss from the 15% group (generally long term stock losses) is used first to reduce net short term gain, then net gain from the 28% group, and then to reduce gain from the 25% group.
3. Net losses carried forward into future years may be applied to reduce future gains on the same basis.

Thus, by auctioning a portion of your collection or a family heirloom with low cost basis, you can take advantage of losses recognized on sales of stock to limit your tax exposure from any gains on those objects, while you free-up additional capital and hopefully make room for more collectibles.

And best of all, you may even be able to use stock losses that are normally subject to just 15% tax savings to offset collectibles gains that would normally be subject to 28% gains!

I can make myself available to discuss any pieces that you may be considering. It would be my pleasure to walk you through the decision-making process to figure out whether you should be proactively addressing this issue with an auction sale.

If you will send me a brief note with your contact information I will make plans to follow up with you within the next week or so. I can be reached in the office (214-409-1279) or via email (JaredG@HA.com).