When discussing investments and capital gains, the focus is typically on traditional investments (bonds, cash, and stocks) or alternative investments (real estate, hedge funds, commodities, or private equities).
Then there are collectibles, which is another type of alternative investment. While using collectibles for investment purposes can be somewhat risky and challenging, they’re still considered capital assets. As such, if you sell your collectibles, you’ll likely be taxed on the realized capital gains from that sale.
What Exactly Are Collectibles?
Collectibles are objects that theoretically sell for more than the original purchase price. The IRS list of collectibles includes art, jewelry, antiques, stamps, coins, alcoholic beverages, and precious metals.
Some collectibles are a little more obscure. There was the Beanie Babies collectible craze during the 1990s (which didn’t amount to much for collectors). Going back in history, the Dutch collected and sold tulip bulbs during the 17th century. This led to a huge “tulip bubble” and eventual collapse. This wiped out fortunes.
Regardless of their makeup, collectibles are considered capital assets. And according to the IRS, any realized gains from the sale of your collectibles will likely be taxed at the capital gains rate – as long as you held them for a year or longer.
Understanding Collectibles Capital Gains – and Taxes
Capital gains on collectibles aren’t taxed any differently than, say, capital gains from the sale of stocks, real estate, or commodities. On the federal level, your capital gains tax is based on your taxable income and marital status.
The 2022 capital gains tax rate is below:
|
Taxable Income (Single Filer) |
Taxable Income (Married Filing Jointly) |
Capital Gains Tax Rate |
|
$0 to $41,675 |
$0 to $83,350 |
0% |
|
$41,676 to $459,750 |
$83,351 to $517,200 |
15% |
|
$459,751 and above |
$517,201 and above |
20% |
In addition to owing capital gains taxes to the federal government, some states also impose their own capital gains tax rates. The state of California’s 2022 capital gains tax rate is 13.3%. At the other end of the spectrum are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming, none of which levy a tax rate on capital gains. Adding to the confusion is that some states might offer tax exclusions for collectibles purchased before a specific year.
Know Before You Buy – and Sell
Whether you’re investing in the more traditional stocks and bonds or prefer to focus on gems, cards, or stamps, it’s important to understand the tax consequences resulting from the sale of these items. Working with a qualified tax professional who understands the tax treatment of capital gains at the state and federal levels can help you avoid unexpected surprises when it’s time to file.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.
