7714 / When a collectible is sold, how is the transaction taxed?

Except for tax rates applied to a taxable gain, no special tax rules apply to sales of collectibles held for investment. Therefore, to the extent that the selling price received exceeds the individual’s tax basis (see Q 692) in the collectible, taxable gain must be reported; if the individual’s basis in the collectible exceeds the selling price, a loss may be reported from the transaction (still assuming, that is, that the collectible was “held for investment”).¹ Collectibles gain (i.e., gain on the sale or exchange of a collectible that is a capital asset held for more than one year – see Q 702) is subject to separate treatment from other capital gains and losses, which generally results in its being subject to a capital gain rate less favorable than the generally applicable rate, but more favorable than the rate for ordinary income.² See Q 698 for the definition of capital asset. See Q 702 for the tax treatment of capital gains and losses.

If the entire purchase price for the collectible is received in the taxable year of sale, the gain (or loss) must be reported on that year’s income tax return; otherwise, the installment sale rules will apply. See Q 667. Beginning in 2013, the net capital gain may also be subject to the 3.8 percent tax on “net investment income” (known as the NIIT), as defined in IRC Section 1441, depending upon the taxpayer’s modified adjusted income.³

1.  IRC § 1001.