Calculating Capital Gains Tax on the Sale of a Collectible
Uncle Sam takes a tax bite out of almost every asset sold and collectibles are no
exception. Indeed, collectibles are currently subject to one of the highest rates
of federal taxation on investment property. Capital gain from the sale of a collectible
is taxed at 28 percent.
What is a collectible?
What is a "collectible?" Of course, collectibles include stamps and coins, precious metals, fine
wines, glassware, and other commonly collected items.
It’s important to keep in mind that less obvious items are often "collectibles."
For example, a collection of political campaign buttons and badges can be a collectible.
If an item is an antique, it is probably a collectible.
Higher tax rate
Traditionally, collectibles have been taxed at a high capital gains rate because
of public policy arguments. Supporters of high capital gains tax rates for collectibles
justify their position by the lack of broader benefits, such as innovation, new
products and higher productivity, that society receives from collectibles. On the
other hand, society benefits from the preservation of works of art, antiques and
many other collectibles.
Before you calculate gain, you have to have an understanding of basis. If you purchased
the item, then your calculations start with the cost of acquisition. These costs
include not only what you actually paid for the collectible but also auction and
Inherited collectibles are treated differently. Your basis is the collectible’s
fair market value at the time of inheritance. Most commonly, fair market value is
determined by an appraisal but there are other methods. Another way to show fair
market value is by looking at current sales of comparable collectibles.
Your collectible may have been a gift from another person. In this case, your basis
is the same as that of the person who made the gift.
Many collectibles require special care. You may have spent money to maintain the
collectible or restore it. These costs are also part of your basis in the
After you have calculated your basis in the collectible, you subtract your basis
from the amount you sold the item for. This is your capital gain.
Example. Beverly inherits a 19th century rocking chair from her grandmother.
Shortly before she died, Beverly’s grandmother had the chair appraised. Its value
was determined to be $2,000. Beverly spends $500 to restore the chair. Two years
later, Beverly sells the chair online. Beverly earns $3,900 from the sale. Beverly’s
basis in the chair is ($2,500) ($2,000, which was the chair’s fair market value
when she inherited it, plus the $500 she spent to restore it). Beverly’s capital
gain is $1,400 ($3,900 minus $2,500). As a collectible, it is taxed at 28 percent
rather than 15 percent, a difference of $182 in tax.
"Gold bug" advice
The price of gold has risen in the past several years. Investing in gold
presents two issues. First, there is the issue of valuing gold coins. When coins
have numismatic worth exceeding their face denomination, the amount realized is
the numismatic value of the coins, not the face value. Second, if you want to invest
in the price of gold rather than in the collectible nature of a gold coin, you should
consider investing in gold strictly as a precious metal, such as through
gold-mining stocks. That interest, and the gain realized
by selling it, is entitled to full capital gain treatment. Do keep in mind however that
mutual funds which buy and sell gold for their
shareholders, exchange-traded funds (such as GLD and IAU) which buy and sell gold
for their shareholders, and direct purchases of gold bullion and/or gold futures, are
considered collectibles! The same applies to silver and other precious metals and