The American Classic Arcade Museum (ACAM) is a non-profit museum housed within the Fun Spot Arcade in Laconia, New Hampshire. I found myself there one rainy Saturday this summer with extended family, hoping to feed the good parts of my son’s video game habit. The museum is full of classic arcade games – Asteroids, Space Invaders, Donkey Kong, and more – most of which can be played for a quarter.
One corner of the museum is dedicated to the collection of Scott G., a former museum volunteer and classic game collector. A sign above the games says that in 2011, Scott was diagnosed with terminal cancer. Soon after he donated his personal collection of classic arcade games to the museum.
The collection caught my interest. It’s a hidden Estate Planning gem that got me thinking about the benefits of donating collectibles – arcade games, artwork, jewelry and antiques, for instance – to a museum. There are several.
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Income Tax Savings – Charitable donations of collectibles may allow the donor to take a charitable income tax deduction in the year of the gift. If the IRS “related use” rule is satisfied, the amount of the deduction is the fair market value of the collectible at the time of the gift. The “related use” rule is satisfied if the collectible is donated to a charity that uses the gift as part of its charitable purpose.
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Elimination of Capital Gains – If the collectible were sold, the owner would pay a capital gains tax at sale. The long term federal capital gains tax rate for collectibles is higher than for other assets. It is 28%, instead of 15% or 20%. Adding on the 3.8% Medicare surtax brings the total long term capital gains tax rate on the sale of collectibles to 31.8%. By donating the collectible to a charity, that tax avoided.
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Estate Tax Savings – If a donor donates a collectible to a charity during his life, that item isn’t included in his estate at his death and won’t be subject to state and federal estate taxes. For those in Massachusetts with a federally taxable estate, the combined estate tax rate is over 50% so the savings may be significant.
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Trash v. Treasure - As they say, one person’s trash is another person’s treasure. Collectibles often carry with them significant emotional value for the owner. Family members may not attach the same emotional value. But a museum might be able to make the collectible accessible to those who do.
In fact, that emotional value is why I and my extended family ended up at ACAM that rainy Saturday. Video game obsessions go back 4 generations in my family. My grandfather was a billiards table salesman in the 1940s and 50s, and then a video arcade marketing executive in the 50s, 60s and 70s. He passed on an obsession with pinball machines to my father. Thanks to a prototype of an early home Atari system my brother and I spent hours playing Pong and Frogger. And now my 12 year old son has Fortnite and NBA2K … and the pandemic.