If someone sells wines at auction, what is the tax rate on those gains? From what I see on the internet 28% seems to apply to collectables. CPAs out there, some reference articles, opinions? Thanks.
The federal tax rate on capital gains is either 15% or 20%, depending on hour other income. Sone states also impose an additional tax. Not sure if wine is a capital asset.
Phil Jones
_Almost everything you own and use for personal purposes, pleasure, or investment is a capital asset. For exceptions, see Noncapital Assets, later.
The following items are examples of capital assets.
Stocks and bonds.
A home owned and occupied by you and your family.
Household furnishings.
A car used for pleasure or commuting.
Coin or stamp collections.
Gems and jewelry.
Gold, silver, and other metals.
Timber grown on your home property or investment property, even if you make casual sales of the timber._
So I guess after you pay your taxes, plus the premium, you may want to reconsider selling.
Normally, for an individual, the maximum rate would be 28% (the rate would be lower if your taxable income is low enough to put you in the 15% tax bracket for ordinary income).
Wine will be a capital asset under IRC § 1221 unless it is inventory or supplies, i.e., unless you are in a trade or business of selling wine or you are using the wine in a trade or business (e.g., you purchased the wine for business entertainment).
However, alcoholic beverages are also defined as a “collectible” under IRC § 408(m), and gains from the sale of collectibles that are capital assets are taxed at a maximum rate of 28% (rather than the 15%/20% maximums that apply to sales of most other types of capital assets).
ETA: The maximum rate of 28% applies only to assets held for more than one year. Sales of capital assets held for a year or less generate short-term capital gain which is taxed at the same rates as ordinary income.
And, it’s also based on whether or not you bought it as an investment. If you can prove another reason (death, divorce, hard times, etc.), you won’t be subject either.
Thanks everyone for the great feed back. So wine is a collectible and for people in a high tax bracket, 28% is the rate gains are taxed at. Sale of a non collectible (a capital asset), if there was a capital gain it would be taxed like any other income. Correct?
You make the faulty assumption that all accountants are tax accountants. Just because you passed the reg section of the cpa exam 20 years ago does not mean you retained he ability to actually do taxes or remember fairly specialized tax regs