Taxation of Collectibles and Other Actual Physical Things

Abstract

Two tax rules apply to a finite set of “collectibles” as defined in the tax law. Net long-term gain on the sale of a ‘collectible’ capital asset is taxed at 28%, instead of the usual 20% tax rate. In addition, Individual Retirement Accounts (IRAs) and self-directed retirement plans are prohibited from owning a subset of such collectibles.

Not everything that is vaguely collectible is considered a “collectible” under the tax rules, and certain items that are not particularly collectible may be considered a tax “collectible”. Two infrequently asked questions are addressed in this article:

1. Are Pokemon cards, Magic: The Gathering cards, and other paper collectible cards considered “collectibles” for tax purposes? Although some older cards may be antiques and therefore "collectibles" for tax purposes, newer cards should not be taxed as “collectibles” at the 28% tax rate and may be owned by an IRA absent future guidance to the contrary. Similarly, collectible video games, new clothes, records, and Rae Dunn mugs should not be considered “collectibles” under the tax rules.

2. What is the taxation of metal objects? The tax rules define a “collectible” as including “any metal.” Accordingly, gain on the sale of any capital asset might be taxed at 28% to the extent that the gain is allocable to a metallic element, from lithium to iron to plutonium in pure metal or compound form. Treasury and the IRS should provide guidance to confirm whether an IRA may own a metallic Rolex Oyster Perpetual Datejust or any real property that contains elevators, metal appliances, and other metal components.

This article does not address digital assets such as World of Warcraft gold, United Airlines miles, and rare Neopets accessories in the metaverse, some of which may be ‘collectible’ for tax purposes if they are a work of art, although there is some statutory interpretation debate over whether tax ‘collectibles’ are limited to tangible property.

Keywords: collectibles, tangible assets, cards, video games, real property, neopets