The capital gains tax on the sale of a collectible is a flat 28%. Provided you hold the piecefor more than one year, you won’t pay more than that amount — even if you’re in a high taxbracket. The...

The capital gains tax on the sale of a collectible is a flat 28%. Provided you hold the piecefor more than one year, you won’t pay more than that amount — even if you’re in a high taxbracket. The level of tax is high, but it’s advantageous for those in the higher tax brackets.(For more, see: A Primer on U.S. Tax Rates.)The tax rate is set at such a high level because the government isn’t a big fan of the buyingand selling of collectibles. Unlike business innovations or comprehensive employee training,collectibles aren’t real economic drivers. In short, the government would prefer capital beput toward efforts that help grow gross domestic product. (For more, see:The 5 IndustriesDriving the U.S Economy.)However, all of this is irrelevant if you’re someone who wants to sell a collectible and wantsto know about all the tax rules. You already know the capital gains tax on the sale of acollectible, but there’s more to the story. (For more, see: Contemplating CollectibleInvestments.)What is a Collectible?Providing the answer to this question won’t get us very far, since it’s simply “an item worthcollecting.” A list of examples will give you a much better idea:Rare stampsRare coinsRare booksArtBaseball cardsGlasswareAntiquesFine wineThis list goes on and on, but you get the idea. (For more, see: 6 Major Collectibles Payoffs.)What Is Your Basis?When figuring out your tax obligation for selling a collectible, you need to figure out yourbasis. In order to do this, you can use this simple formula: Cost of item + auction and brokerfees = basis. For “cost of item” you can include maintenance and restoration costs. (Formore, see: How to Cash in Your Heirlooms.)If you inherited a collectible, then the basis is the fair market value of the item at the time ofinheritance, which should be based on an appraisal. If the collectible has not beenappraised, the fair market value also can be determined by comps (i.e., the price of similaritems). The problem with using comps is it doesn’t take into account the condition of yourcollectible or the collectible being used for comparison. (For more, see: Should You InsureYour Collectibles?)Once you establish your basis, subtract the basis from the sale price and you will have yourcapital gain.For example, let’s say you inherited an antique table. The fair market value at the time ofinheritance was $5,000. You put $1,000 into it for restoration, which you hoped would helpincrease its value. Fortunately, you were correct, and you sold the table for $7,500. Youhave a gross profit of $1,500. Your capital gain obligation at 28% is $420. After taxes, youhave $1,500 ­ $420 = $1,080 in net profit. (For related reading, see: The EasiestInvestments Ever Made.)Important Notes1. If you sell a collectible in less than one year, it will be taxed as ordinary income.2. If you buy and sell gold or silver, or gold and silver exchange­traded funds, it will be taxedas a collectible (since gold and silver are considered collectibles). This is important to noteso you’re not surprised in the future. (For more, see: The Top 3 Silver ETFs.)3. Stick to your circle of competence. In other words, if you know everything about rarestamps and nothing about art, you should never put capital in art. The only exception forgoing out of your comfort zone is in the public markets, where a lot of information isavailable to help form an investment opinion; this type of information isn’t available in themajority of the collectibles market. (For more, see: 6 Things You Shouldn’t Sell at a GarageSale.)4. If you use a collectible for personal use (hanging a painting on a wall in your home asopposed to keeping it in storage), then you will not be able to claim a capital loss. (Formore, see: Fine Art Can Be a Fine Investment.)The Bottom LineThe sale of collectibles can lead to a cash windfall, but the tax obligation will be high formost people. If you’re still not 100% sure or comfortable about the sale of a collectible (orcollectibles) and you want to minimize your tax obligation, hire a tax advisor. (For more,see: Introduction to Investment Diversification.)