The IRS considers most collectible items, except those sold by dealers, to be capital assets. As a result, the gain or loss from the sale of a collector's item that you've owned for more than one year is generally considered a long-term capital gain or loss. Gold in my IRA is an example of an alternative investment, and the percentages and figures of collectibles are very different from standard rates. The capital gains tax on net profits from the sale of a collector's item is 28%. Depending on adjusted gross income, you may also receive a net investment income tax of 3.8%.
The sale of collectibles can generate windfall profits, but the resulting tax liability can be substantial. Capital gains, in general, have an average rate of around 15% for most of its users, according to the IRS. Unlike typical profit and loss schemes, the procedure for compensating collectible gains and losses is more complicated. On the other hand, if you donated the collection to a hospital and the hospital sold it, it is likely that the donation does not meet the test for related use.
This would probably be the case if, for example, you donated a collection of political memorabilia to a history museum that then displays them. Keep in mind that the collectibles rate is considerably higher than the tax rate for most long-term capital gains, which is an average of 15% for most taxpayers, according to the IRS. If you buy and sell gold or silver, or exchange-traded funds in gold and silver, they will be taxed as collectibles (since gold and silver are considered collectibles). If you use a collector's item for personal use (hanging a picture on the wall of your house instead of storing it), you won't be able to claim a loss of capital.
That's why the IRS has developed guidelines governing the taxes imposed on the sale of collectibles and the deductions that are allowed when collectibles are donated to qualified charities. In order to determine the tax obligation to sell a collector's item, special attention should be paid to the calculation of the base. The tax rate is presumed to be so high, since the government is not fascinated by buying and selling collectibles. If you're one of the more than 5 million viewers of the television series “The Pawn Shop” or an avid fan of “Antiques Roadshow”, you know that a random collectible item, for example, the first issue of the Superman comics or one of the five 5-cent coins from Liberty Head V from 1913 known to exist can be worth a lot of money.
If you're still unsure or don't feel comfortable selling a collectible (or collector's) item and want to minimize your tax liability, consult a tax advisor. To deduct the fair market value of the collector item, the donation must comply with what is known as the “related use test”. This is the non-taxable part of your collectible and is usually the same as what you paid for the item. The collectible goods sector is not an engine of the real economy compared to business innovations or comprehensive employee training.
