When you get into the hobby of collecting coins, you’ll seldom see collectors who are in it purely for collecting. Most often, coin enthusiasts hope to profit from their collections. But when it comes to making a profit, it’s hard to ignore the possibility — and responsibility — of paying taxes.
Coin collections are taxable if you plan to sell them for a gain, especially as a part of your alternative investment. The IRS charges capital gains tax and/or net investment income tax for selling valuable coins. Depending on your local and state laws, you may pay sales tax for buying coins.
Rare and graded coins can rapidly increase in value, making them an ideal source of profit. However, before selling your coins, you must first understand how they’re taxed. I’ll explain it in more detail in the rest of the article.
How Your Coin Collection Is Taxed
Coin collection is a fun hobby that can quickly become complicated once you turn it into an alternative investment. Possessing or even inheriting valuable coins will subject you to various types of taxes once you sell them.
These numbers can be overwhelming, especially when you’re doing the taxes yourself. And this process is something not many people can get used to. Still, as a collector and seller, it’s your responsibility to understand how taxation on collectibles works.
Please be aware that the legality of collecting items can vary depending on the location in which you’re collecting.
Before performing any collection tasks, it is ultimately your responsibility to check local and state rules, regulations, and laws to see if there are any legal limitations on what you can collect and how you can collect those items. We are not responsible for any legal consequences that may arise from your collection activities.
But don’t be discouraged about collecting coins just yet, as I’ll explain some basic information about how coin collections are taxed.
Capital Gains Tax
The first type of tax you should know about when selling valuable coins is the capital gains tax. In simple terms, it is the tax paid for the profit made from selling an asset. It is currently at a maximum of 28% for collectibles like artwork or coins.
Note that you will be charged a capital gains tax only if you sell a coin in your collection.
Another vital piece of information to consider when calculating the capital gains tax is how long the coin has been in your possession before you sold it.
If you’ve had it for less than one year, you’ll have to pay the short-term capital gains tax. Conversely, selling a coin you’ve held for more than a year makes you liable for a long-term capital gains tax.
Short-term capital gains tax is charged the same way as income tax, so the amount you pay in taxes for selling the coin depends on your income bracket.
In 2023, the IRS provided the estimated tax for individuals. Here’s the summary below:
|Tax Rate||Single||Married Filing Separately||Married Filing Jointly||Head of Household|
|10%||$0 – 11000||$0 – 11000||$0 – 22000||$0 – 15700|
|12%||$11000 – 44725||$11000 – 44725||$22000 – 89450||$15700 – 59850|
|22%||$44725 – 95375||$44725 – 95375||$89450 – 190750||$59850 – 95350|
|24%||$95375 – 182100||$95375 – 182100||$190750 – 364200||$95350 – 182100|
|32%||$182100 – 231250||$182100 – 231250||$364200 – 462500||$182100 – 231250|
|35%||$231250 – 578125||$231250 – 346875||$462500 – 693750||$231250 – 578100|
|37%||Over $578125||Over $346875||Over $693750||Over $578100|
If you want to maximize your profits and reduce capital gains tax, there are some key points to remember before selling the coin within a year of ownership.
Suppose your income tax rate is between 10% and 12%. The profit you make from the sale of the coin is excluded from your regular income. Therefore, if you sell the coin within one year of ownership, your capital gains tax will be equal to your regular income tax rate.
Scenario: You’re single, in the 12% tax bracket, and have a precious coin valued at $15000. Whether you bought the coin and paid fifteen grand for it or inherited it and got it appraised at that amount, the amount will serve as your non-taxable basis.
If you sell it for $16000 within six months, your profit will be $1000, which is essentially your capital gain or taxable amount. Your capital gains tax will then be calculated as follows:
$1000 x 0.12 = $120
In contrast, if you’re in the top bracket (37%), you’ll pay $370 as capital gains tax.
According to the IRS, long-term capital gains from selling coin collectibles are taxed up to 28%.
Based on the scenario above, taxpayers in the top 3 tax brackets should wait until the holding period for the coin exceeds one year before selling it. That way, they’ll pay only the maximum 28% capital gains tax. The tax will then be computed as follows:
$1000 x 0.28 = $280
Note that the 28% rate is the maximum amount you have to pay, and this only applies to sales of precious coins that exceed the set threshold amount. You’ll pay the lower capital gains tax rate if your taxable income is below the threshold.
The following tax rates apply to the corresponding taxable incomes, depending on the taxpayer’s status. Note that the threshold amount can vary annually due to various economic factors, such as inflation.
|Single||$0 – 41675||$41676 – 459750||Over $459750|
|Married filing separately||$0 – 41675||$41676 – 258600||Over $258600|
|Married filing jointly||$0 – 83350||$83350 – 517200||Over $517200|
|Head of household||$0 – 55800||$55801 – $488500||Over $488500|
Interestingly, the actual amount you have to pay in capital gains taxes can substantially surpass 28%. But it’s also possible to reduce your tax dues based on several factors:
- Taxable income for the year: Depending on your income and how the sale of the coin affects it, you may need to pay 0%, 15%, 20%, or the maximum 28%.
- Your marital status: If you’re single, married (filing jointly), married (filing separately), or head of the household, you must pay a different rate.
- Investor or dealer status: Investors pay taxes only for the profit from selling their collectibles. On the other hand, dealers pay rates similar to income taxes.
- Capital loss: Gains made from the sale of valuable coins can be offset by losses from selling other tangible assets in the same year.
- Qualified deductions: Business owners earning below a set threshold can claim a Qualified Business Income (QBI) deduction. The threshold can vary annually, so you must keep yourself updated.
Several other criteria contribute to the actual fees you have to pay in capital gains tax for selling a rare and valuable coin. It’s always best to consult a tax accountant for updates on the tax laws and any changes that can affect your total taxable income.
Net Investment Income Tax
If you’re making a significant profit from selling your coin collection, you may also be required to pay the net investment income tax (NIIT). This adds a 3.8% deduction to your profit on top of the capital gains tax.
Collectors who consider their coins as alternative investments and sell them for gains must declare this accordingly to the IRS. Doing so will automatically subject them to the NIIT.
Some investors might think they don’t have to pay NIIT because their coin collections weren’t explicitly identified by the IRS. You can refer to the 31 US Code Section 5112 for the list of coins that aren’t considered collectibles and thus may be exempt from the NIIT and other taxes.
Suppose you sell a rare collectible coin for $50000. If adding this to your modified gross adjusted income (MAGI) increases your taxable income beyond the threshold, then you’ll most likely be subject to an additional NIIT.
To sum it up, you’ll have to pay capital gains tax, net investment income tax, and, in some cases, sales tax, depending on your state and local laws.
Sales tax is a percentage of the cost of a good or service, including coins or monetized bullions, charged to the customer. This sales tax is then forwarded to the government by the seller.
In contrast to rare coins, which can fetch several thousand to millions of dollars, some coins sell only based on the value of the precious metals they contain, like silver and gold. Many US coins minted before 1964 contained up to 90% of these metals, making their current worth significantly higher than their face value.
The sale of monetized bullion may be exempt from sales tax and other relevant taxes, depending on state laws. Some states may also waive the sales tax if you purchase the coin from a different state.
As a buyer, if you want to avoid paying excessive fees on your coin purchase, you must always make transactions with reliable dealers or sellers. In addition, you must learn about the applicable taxes you must pay to buy the coin.
Conversely, sellers should also understand their income declaration and tax responsibilities for the sale of their precious coins. The actual tax responsibility for the sale of coin collections is a complicated matter because the criteria for whichever type of coin is taxable as per IRS regulations is subject to multiple misinterpretations.
For instance, the type of coins, the number of units required for reporting, your personal or professional sources of income, and various state laws can make your tax responsibility different from other collectors.
Even your classification as a collector, an investor, or a dealer can significantly affect your tax dues.
This is where memberships in non-profit organizations like the American Numismatic Association (ANA) and other coin collection organizations become beneficial. You can expand your network and learn more about legal responsibilities on your purchases and sales.
You may also get in touch with tax accountants with ample experience regarding coin collections through your connections within the organization.
Things To Remember Before Selling Your Coin Collection
As I mentioned, collecting coins can be all fun and games until you decide to sell them. After that, it can become so overwhelming that the idea of evading taxes can seem tempting.
A word of caution: DON’T. Evading your tax responsibilities can give you massive penalties, so let’s be responsible taxpayers.
The taxes listed above are the common fees to watch out for before celebrating your profits. But you may be subject to more taxes due to your classification as an individual taxpayer.
Although all these seem complicated — and trust me, they are — there are still some things you can do to make your coin collection hobby fun. For more information, check out my post on whether starting a coin collection is worth it today: Is Starting A Coin Collection Worth It? How To Decide
Here are some things to remember before selling your coins:
1. Decide Whether You Want To Be a Collector or Investor
A coin collection enthusiast can be considered a collector or an investor. A collector focuses on finding and storing coins for pleasure. On the other hand, investors may also find joy in collecting coins, but their main goal is to profit from them.
Even if you’re a collector, don’t disregard the possibility of selling your coins in the future. In that case, purchase coins only from reputable sellers and keep your receipts. They will serve as your proof of ownership and help determine the start of the holding period (typically one day after the purchase date).
If you inherited a valuable coin, you must have it appraised as soon as possible. Find an IRS-authorized appraiser and keep a record of the transaction. You can use this information later as your basis when filing for a short-term or long-term capital gains tax.
On the other hand, investors can benefit by deducting relevant expenses from their gross income, such as insurance and grading fees. If you want to learn more about possible exemptions, you can consult a tax professional.
2. Consult a Tax Accountant or Advisor
Many say that keeping collectibles as an alternative investment is only for the wealthy, and they’d often be right.
The cost of preserving valuable coins in excellent condition and the fees associated with working with tax accountants can deduct from your profits. Add them to your tax dues, and the whole thing can admittedly be discouraging.
Consulting a tax accountant or advisor can help you maximize your profit and avoid incurring penalties. I can’t stress this enough, as this decision can definitely help you save a lot of money when it comes to selling highly valuable coins.
Filing your own tax returns is already stressful, and having to deal with capital gains tax and all other taxes can easily aggravate your anxiety. A tax accountant can help you save time and avoid stress. This is especially true if you have multiple sources of income, such as:
- A business
- An inheritance (assets)
- Taxable alimony (if you’re a recipient)
- An investment (stocks, bonds, EFTs)
A tax professional knows their way around taxes and calculates them in a way that would provide the highest possible benefit for you without legal implications.
But if you see yourself doing the collectible coin trade for a long time and want to avoid incurring additional costs for the tax accountant’s professional fees, you can ask them to teach you how it’s done.
However, understand that earning their experience and expertise wasn’t cheap. Don’t feel bad if some tax professionals refuse to disclose the exact process or discourage you from doing your own taxes. They naturally won’t willingly do so, as it equates to losing you as a valuable client.
In that case, you must study your copy of the documents and ask them where all the numbers come from. After all, they’re your numbers. And signing the documents makes you liable for any false or incorrect information in them.
For most people, the information on the documents can be overwhelming. But if you have a thing for numbers and plenty of time on your hands, you may be surprised how doable it can be. It’s not simple or easy, but it’s definitely worth learning.
3. Conduct Research About the Coins in Your Collection
Suppose you’re a beginner collector and simply would like to learn more about the possible taxes and other fees involved in selling your collectible coins. In that case, you can check if your coins belong to the list of coins exempted from sales tax or net investment income tax.
In addition, here’s the list of things you may want to become familiar with:
- Identify which category you belong to as a taxpayer and your tax exemptions, if there are any.
- Know the difference between short-term and long-term capital gains tax.
- Confirm the fair market value of your coin and understand how much its sale can affect your taxable income.
- Check the existing local and state laws regarding sales taxes on the type of coins in your collection.
Coin collections remain tax-free unless you sell them. After selling valuable coins, you’ll be liable for federal taxes, such as capital gains tax and/or a net investment income tax.
On the other hand, buying coins may subject you to a sales tax, depending on the local laws in the state where you purchased them.
Every individual may have different income sources, statutory thresholds, and tax exemptions. If you’re uncertain about which taxes you’re liable to pay or interested in ways to reduce your tax dues, it’s always best to consult a tax advisor.