October 6, 2022
Taxes and collectibles: How does it work?
Financial windfalls and gifts can be incredibly exciting. However, they can also introduce some tax-related complications. If you come into money or recently acquired a pricey collectible, it can be incredibly wise to consult a tax professional to help you assess your options.
This might well be the next step for one man who recently caught a baseball potentially worth millions of dollars.
A treasure trove, gift, or something else?
Sports memorabilia collectors have had an exciting season when it comes to Major League Baseball, as players have set and broken several records this year. One such record was when Aaron Judge hit his 62nd home run, breaking the record for the most homers in one season.
The man who caught that historic ball now finds himself possessing a highly valuable item. With that comes some tax implications that could dramatically change his financial status, depending on the IRS’ treatment and what he decides to do with the ball.
As this article examines, possible outcomes of this event could include:
- The IRS immediately considers the ball’s value to be income and taxes it as such under the gross income regulations, also called the treasure trove regulation.
- It could apply the gift tax on the item if the man gives it back to the organization or another party.
- It could tax the item at 28% (the long-term rate on collectibles) if he keeps it for more than a year.
- It could tax the ball now at its current retail value, then tax the increase in value when and if the man ever sells the ball.
Whatever the man – and others in similar situations – chooses to do will almost certainly take into account the tax treatment of their actions.
What about my collectibles?
If you have collectibles, knowing how the IRS might tax them can be helpful, though it’s not always clear. Collectibles can be complicated to address. Factors like specific intrinsic values, how you acquired item(s) and what you do with them can all change the tax treatments.
Because of this, legal and financial guidance can be crucial when filing tax returns or transferring ownership of collectibles. This support can help you make informed decisions regarding these unique items and avoid costly missteps.