Every Last Drop:
Making the Most Out of Wine

History was made in July 2011 when a London company sold a bottle of 1811 Chateau d’Yquem for the hefty price of $117,000, making it the most valuable white wine ever sold. Two years later and halfway around the world, visitors to the Dubai International Airport could likely charter a private jet for less than it cost to indulge in the airport’s finest drink. The Le Clos wine shop, located in Terminal 3, offers the most expensive retail bottle of wine on the market today. Each bottle of this 2009 Bordeaux from Chateau Margaux is one of just six ever made and boasts a nearly $200,000 price tag.

While these examples are exorbitant, the lengths that enthusiasts go to for good wine prove that, depending on the bottle, it can be more than just a drink and even more than a passion; wine may be a financial asset. And just as with any other asset, there are unique ways you can leverage your wine collection’s value as well as certain measures you should take to protect it. Learn more about wine as an investment, plus insuring and donating considerations.

Investing

The original idea of wine as an investment, and the one that many collectors still cling to today, is of purchasing a bottle of wine, holding it, and then reselling it at a profit after it ages. While this is certainly possible, the inherent elements of chance that come with “investing” in wine this way carry a lot of risk.

Wine, in a strictly financial sense, can be hard to liquidate depending on the market. Its value is also extremely hard to predict, as the same bottle may be worth much more to one seller than another. Just as with fine art, prices can be subjective. Also keep in mind that the cost to store and insure wine for a long period may cut into any profit you may make. While wine can certainly be an asset, collecting wine and “investing” in it, that is collecting it with the expectation that it will make you a profit, are not the same thing.

 

 

Beyond the traditional idea of wine as an investment, wine funds have also become an option for wine enthusiasts looking to invest. As in any other mutual fund, investors pool their money and entrust it to a fund manager. However, instead of purchasing and trading stocks, the manager then purchases wine on behalf of the investors and looks to resell it at a profit. These funds can also invest in wine-related real estate, such as vineyards. However, though these investments are made on a larger scale, they are still subject to the same inherent risks as “investing” in a bottle of wine by letting it gain value in your wine cellar.

In addition, these types of funds are often based abroad, and not subject to many of the regulatory assurances of the domestic market. Unlike positions in a normal security, wine positions aren’t easy to get out of immediately; they will likely take months or even years to find a buyer, especially if you expect to profit. The inherent risks that come with investing in wine should be fully considered before putting money toward a wine fund.

Insuring

Due to its fragility, the nature of wine makes it risky to leave uninsured. Especially if your wine collection is extensive or if you have even a few bottles worth almost their weight in gold, a bottle falling off a shelf or souring due to a sudden temperature change can mean the loss of thousands of dollars in a split second.

While your standard homeowners policy may cover damage to your valuables due to fire, theft or natural disaster, often this coverage only extends to a few thousand dollars or doesn’t cover loss due to power outages, temperature changes or dampness or dryness; depending on the value of your wine collection, this simply might not be enough.

Rather than depending on your homeowners insurance, you have the option of purchasing a separate policy for wine insurance. Depending on the insurance company, this may be specifically for wine or combined with a separate valuables policy.

As with other types of valuables insurance, you will have the choice to insure your collection either with a blanket policy or by itemizing your collection. Blanket coverage will allow you to declare an overall value for your collection rather than estimating the value bottle by bottle, which may be a timesaver if you have hundreds of bottles in your collection. However, itemizing (often called “scheduling”) can be a more attractive option for protecting single bottles of very high worth. Some insurance companies will also offer you the option to combine these two types of coverage.

To choose which coverage is best for you, it may be helpful to get an appraisal of your collection from a specialist. You should also re-evaluate your collection every few years, as wine prices can vary greatly from year to year.

Although prices will vary from company to company, valuables insurance generally has no deductible and coverage will extend to all types of possible perils, including those not generally included in a homeowners policy (such as flood damage).

In the case of damage to your collection, many insurance carriers specializing in wealthy clients will cover either the scheduled amount or the market value up to 150 percent of the scheduled amount, whichever is higher. Since wine has a fairly volatile price, this can help protect you against short-term price increases.

The type and amount of coverage you purchase is entirely dependent on the amount of risk you are willing to absorb and the value of your collection. Keep in mind that if your collection is particularly large and/or expensive, expanding beyond your homeowners policy can give you peace of mind and reduce the risk of thousands of dollars’ worth of loss.

Donating

Donating a portion of your wine collection, either through a direct gift or by liquidating the wine’s value, can provide you with a powerful tax write-off while giving back. However, it can also be a handy way to move a portion of your collection that you no longer have a need for. Rather than allowing bottles to become wasting assets, knowing you won’t consume them and the price likely will not appreciate, it can be advantageous to donate the wine. This allows it to be sold or auctioned, preserving the wine’s use and giving a charity a valuable donation. Two ways to donate high-value wine include donating it to a charitable auction and liquidating the wine to fund a donor-advised fund.

Donating wine directly to a charity for auction often allows the charity to receive big gains from its sale. Since the wine in your collection may already be worth a great deal, and people at charity auctions typically pay more than the item’s actual worth, the money you are able to provide the charity may be far higher than you expected.

Keep in mind, however, you cannot deduct the price that the wine sold for from your taxes; rather, your deduction is limited to your “tax basis” in the property. Your tax basis is simply the original value of an asset for tax purposes; generally, the purchase price you paid. Your deduction is limited to the basis due to the “related use” rule of the IRS, as the sale of an item is considered “unrelated” to the charity’s exempt activities, even if the sale raises money for the charity to use in its programs. It’s important to know the amount you are able to deduct to avoid an audit and determine which portion of your collection will provide you with the most valuable tax deduction.

Another charitable option available for your wine collection is to liquidate the bottles or cases you want to donate and contribute those funds to charity. Ironically, wine is a very illiquid asset, as it can take a good deal of time to sell. Many people choose to use a middleman to sell the wine and transfer the funds into a donor-advised fund, eliminating your need to find buyers for your collection. In this case, you would receive a deduction for the amount you were actually able to give to the fund (up to 50 percent of your AGI) and also receive the additional tax benefits of using a donor advised fund, or DAF, which include allowing your donation to grow tax-free.

You can donate your wine collection to charity in many ways, and it can be helpful to consult a tax professional before donation to ensure you are maximizing deductions as well as the amount you can give to charity.