Selling Your Collection? Understand the Tax Implications...

By Dave

February 11th, 2008

The New York Times had an interesting piece yesterday on the issue of paying capital gains taxes when selling items from your collection. In addition to discussing how the IRS views collectors who aren’t dealers (they expect you to pay anyway), the piece shed some light on how to establish the “cost basis” for pieces in your collection.

tax implications of selling your collectionTo summarize: if you bought an antique on the open market, your cost basis is what you paid for it, and you’ll only be liable for taxes on gains above that amount if you sell. If you inherited a piece that had a clear market value at the time it was passed to you, then your cost basis is that amount (and if you turn around and sell it right away for that amount, you’ll pay no taxes on the sale). But if you inherited something that didn’t have an easily determined value, you may be wise to get it appraised so you don’t later get hit for a tax bill on the item’s full value when you sell (the burden is on the seller, not the IRS, to prove the item’s value or cost basis).

Finally, if you received the item as a gift (rather than an inheritance), your cost basis is the same as that of the person who gave it to you. So if your mom gave you something she got for pennies at a yard sale fifty years ago, your basis is pennies, and you’ll end up being liable for taxes on the full value at the time of the sale.

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