Income Tax on the Sale of Gold and Other Collectibles

If you sell gold, jewelry, works or art, or collectible items, you will generally pay a higher rate of federal income tax than you would on gains on the sale of other assets. The capital gains tax on collectibles is 28%, compared to the current capital gains tax of 15% on other assets that you have held for at least one year.

According to the IRS, the 28% rate applies to capital gains on the sale of works of art, rugs, antiques, precious metals such gold, silver and platinum, gems, stamps, coins, and alcoholic beverages held for more than one year. And as pointed out by Don Dion in TheStreet.com, if you hold shares in a gold bullion-backed exchange traded fund, your gains would also be considered gains on collectibles subject to the 28% rate. If you held the collectible item for less than one year, the gain would be taxed at your ordinary income tax rate.

As pointed out by Patti Spencer in an article for Lancaster, if you are a dealer, the collectible items are your inventory and your profit on sales is business income subject to income tax at the ordinary rates. For example, if you have a flea market stall and sell antiques or other collectible items, you could be considered a dealer.

Your basis for determining your gain on the sale of a collectible depends on how you acquired the item. If you purchased it, your basis is the cost plus auction or broker's fees. If you inherited the item, the basis is the fair market value on the date of death of the person from whom you inherited it. If you acquired the item as a gift your basis is the same as the basis for the person who gave you the item. If you paid money to maintain or restore the collectible, that amount is added to your basis.

Because of the rules on determining the basis of property for tax purposes, if you have a collectible item that has appreciated significantly in value, you may want to consider other options before selling it. If you need or want to sell it, the 28% tax may not be your primary concern. But as indicated by Luis I. Ingles III, CPA on Bankrate.com if you do not sell the collectible during your lifetime your heirs could gain the tax benefit of a stepped up basis. The fair market value of the collectible would become their basis, thereby avoiding income tax on the appreciation of the item since the time when you acquired it.

Sources:

Calculating Capital Gains Tax on the Sale of a Collectible, Greenstein, Rogoff, Olsen & Co., LLP, CPA's

Don Dion, Your Gold ETF Could Bring a Hefty Tax Bill, TheStreet.com

Luis I. Ingles III, CPA, Collectibles and the Taxpayer Relief Act of 1997, Bankrate.com

Patti B. Spencer, Capital gains tax higher on sale of collectibles, Lancaster

Publication 550, Investment Income and Expenses, IRS