I’m not a big movie buff but I love theatre and movie costumes so I was sad to learn that Debbie Reynolds is selling her huge (3500+) pieces of movie memorabilia in an auction today (June 18, 2011) in L.A. I have often seen Ms. Reynolds on talk shows discussing her dream of building a movie museum to house and display her collection. However, she’s not been able to raise the money to do that and is selling the collection. The collection includes props, scripts, equipment and most of all costumes from the golden age of Hollywood movies. This was the time when no expense was spared and the costumes were often handmade out of the finest fabrics and embelishements. As I was looking at some of the pieces what will be available, the thought struck me, I’m glad I don’t have to do the return reporting the sale. Now I’m sure there are tax professional who deal with collectables all the time but I’m not one of them. I would have to do some serious research.
These costumes and props would most likely be classified as collectables and be subject to the capital gains tax rate for collectable of 28% much higher than the special rates I usually deal with. That makes it very important to get the basis of each piece correct. Basis for any asset begins with the cost to obtain the item. Then there are items which can add (improvements) or subtract (depreciation) from the cost to become the adjusted basis. This is subtracted from the sale price of the asset to create a gain or loss on the sale. (A very simplified explanation.) My question is what can be added to Ms. Reynold’s purchase cost to get the adjusted basis? There is no question she could take any restoration costs. But what about the insurance for the collection? That have to be broken down by piece (if it isn’t already). What about storage? We’re talking about more than just a metal storage unit someplace. This would have to not only have the security to keep the insurance company happy but also have the temperature and humidity controls to protect the fragile costumes. What about moving costs to get them to the Paley Center for pre-auction display? Was there a staff member in charge of tracking the collection who’s salary should be considered in adjusting the basis? And it goes without saying, the auction fee is definitely part of the basis equation. That’s what I came up with off the top of my head. Did I miss something? Then all these sales need to be reported on the new Form 8949 and Schedule D. I doubt the IRS will allow them to be lumped together.
It’s sad that there won’t be a museum where this collection could be seen as a whole. And there is no way I can afford to bid on any of these pieces. The lowest estimated price I saw mentioned in the articles I've read was $5000. So I will have to make due with a PDF of the catalog (the actual catalog has sold out) and be glad that I don’t have to figure the basis for all those beautiful pieces.