If you have valuables such as collectibles, keep good records so you know your tax basis for each item.
* Casualty-loss deductions. In case of fire or theft, your tax deductions will be limited to your basis in the affected items. If you can’t prove your basis, you won’t be able to sustain those deductions.
* Insurance proceeds. Similarly, insurance proceeds for any stolen or destroyed items will be treated as a taxable gain to the extent they exceed your proven cost basis. If you lack proof, all of the proceeds may be taxable.
* Basis step-up. Good records may help your loved ones, too. Under current law, whoever inherits will receive a basis step-up to current market value.
If you inherit collectibles from anyone, you should have them appraised right away, to establish a new basis, for all the reasons mentioned above.
On the other hand, when collectibles are given away their original basis goes with them.