Tax Rate on Capital Gains on Wine Sales?

[Robert_Grenley]

My records always seem to show I only broke even, so the actual rate doesn’t matter.

This is correct. There is no tax, unless you’re a schmuck.

Ah, yes, but if you deposit a check from an auction house for $20,000 or $200,000 then doesn’t that raise some flags?

[Robert_Grenley]

If one does not NEED to use the money, and has a cellar full of auction worthy wine that is not in danger of going over the hill, then I suppose leaving that to one’s heirs might be better…assuming the feds don’t get rid of the stepped up basis for inherited assets.

[Robert_Grenley]

Leaving to one’s heirs that which one does not drink and enjoy, I should add.

[Neal.Mollen]

My records always seem to show I only broke even, so the actual rate doesn’t matter.

This is correct. There is no tax, unless you’re a schmuck.

Interesting perspective

[John_Morris]

My records always seem to show I only broke even, so the actual rate doesn’t matter.

This is correct. There is no tax, unless you’re a schmuck.

Interesting perspective

It’s the Leona Helmsley tax principle: Only the little wine collectors pay capital gains.

[Greg_K]

This is correct. There is no tax, unless you’re a schmuck.

Interesting perspective

It’s the Leona Helmsley tax principle: Only the little wine collectors pay capital gains.

But if you’re unlucky, there’s the Wesley Snipes corollary…

[Robert_Grenley]

Between auction sellers’ fees and eventual capital gains tax for collectibles, it would appear that for every $100,000 increase in value, you would net only about $60K. Man, I am glad none of my Burgundies have increased in value!

[john_stimson]

How about the 100 pound elephant in the room with respect to auction houses. I mean are they supposed to report the sale of these items at auction? (wink, wink) Maybe sellers will receive a 1099W (W for Wine,) for the proceeds

I wouldn’t mind hearing the answer as to whether auction houses send a 1099.

What are we to do if we have been buying wine for the past 30 years and have not been saving receipts, and then sell a large number of wines at auction?

Now hold on here for just a darned minute. You’re not selling large numbers of drinkable burgundies to any auction houses, are you???

[Yao_C]

Between auction sellers’ fees and eventual capital gains tax for collectibles, it would appear that for every $100,000 increase in value, you would net only about $60K. Man, I am glad none of my Burgundies have increased in value!

15% auction fees + 20% federal + say 9% state + 3.8% Medicare = damn near 50%

[Craig_G]

This is correct. There is no tax, unless you’re a schmuck.

Interesting perspective

It’s the Leona Helmsley tax principle: Only the little wine collectors pay capital gains.

If only we had a more contemporary example…

[Robert_Grenley]

How about the 100 pound elephant in the room with respect to auction houses. I mean are they supposed to report the sale of these items at auction? (wink, wink) Maybe sellers will receive a 1099W (W for Wine,) for the proceeds

I wouldn’t mind hearing the answer as to whether auction houses send a 1099.

What are we to do if we have been buying wine for the past 30 years and have not been saving receipts, and then sell a large number of wines at auction?

Now hold on here for just a darned minute. You’re not selling large numbers of drinkable burgundies to any auction houses, are you???

Nah, just a theoretical discussion! You and I will continue to drink 'em as the years roll by.

[Robert_Grenley]

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.

– Matt

Ok, here’s the next question…we know that for the sale of wine at auction, wine that has been held for more than one year, the capital gains will be taxed at 28% as above. I assume that one, of course, will subtract their cost basis (initial purchase prices) from the net auction proceeds (after subtracting any other costs such as seller’s fees, insurance, shipping, etc. should they apply).

Is it also true that a seller can deduct the cost associated with safely holding those collectibles over the period of time that they gained in value? Storage fees at a wine storage site? Or, if stored at home, the cost of building out a temperature controlled cellar, ongoing maintenance (repair, replacement) of the cooling system, a portion of the utilities for that percentage of the home’s square footage dedicated to the temp controlled storage, cost of insurance if a separate wine collection rider is on one’s homeowners policy, etc.?
All of these expenses allowed for the wine to be stored safely over the years and increase in value.

And if so, does anyone know of a way to figure this out, since one would be, let’s say, selling only a portion of one’s collection, like 10%, but some bottles may have been stored for 20 years, some for 15, some for 12, etc.?

[maureen_nelson]

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.

– Matt

Ok, here’s the next question…we know that for the sale of wine at auction, wine that has been held for more than one year, the capital gains will be taxed at 28% as above. I assume that one, of course, will subtract their cost basis (initial purchase prices) from the net auction proceeds (after subtracting any other costs such as seller’s fees, insurance, shipping, etc. should they apply).

Is it also true that a seller can deduct the cost associated with safely holding those collectibles over the period of time that they gained in value? Storage fees at a wine storage site? Or, if stored at home, the cost of building out a temperature controlled cellar, ongoing maintenance (repair, replacement) of the cooling system, a portion of the utilities for that percentage of the home’s square footage dedicated to the temp controlled storage, cost of insurance if a separate wine collection rider is on one’s homeowners policy, etc.?
All of these expenses allowed for the wine to be stored safely over the years and increase in value.

And if so, does anyone know of a way to figure this out, since one would be, let’s say, selling only a portion of one’s collection, like 10%, but some bottles may have been stored for 20 years, some for 15, some for 12, etc.?

Great question. Let me know when you learn the answer (and what it is - with citations please).

Hey, being a tax lawyer is all about knowing the questions.

[Ardeis_Scott]

I’ve seen numerous citations stating that the IRS views wine as a “wasting asset” with a defined lifespan and with that reasoning chooses not to tax wine sales. I’m also aware the IRS is requiring sales of assets over $600 including wine to be reported by the wine auction houses…so which is it? Also great question above about deducting collecting and storage costs.

I think I’ll just leave it all to my heirs! It’s too taxing of a problem to figure out.

[maureen_nelson]

I’ve seen numerous citations stating that the IRS views wine as a “wasting asset” with a defined lifespan and with that reasoning chooses not to tax wine sales.

Citation please.

Also, it isn’t the IRS that has imposed the information reporting obligations on auction houses. It is Congress. It was done by the party in power in 2017 when that really bad tax bill was enacted.

[Robert_Pollard-Smith]

I’ve seen numerous citations stating that the IRS views wine as a “wasting asset” with a defined lifespan and with that reasoning chooses not to tax wine sales.

Citation please.

Also, it isn’t the IRS that has imposed the information reporting obligations on auction houses. It is Congress. It was done by the party in power in 2017 when that really bad tax bill was enacted.

The “wasting asset” thingie appears to be a U.K feature.

Wasting assets and tax – there’s nothing to wine about! | RWK Goodman

[Michael_Martin]

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

Actually, it’s 0% up to about $83,000 in income, then 15%, or 20% and a 3.8% kicker for the 20% bracket. Collectibles are a bit different.

[Robert_Grenley]

I have heard that the costs involved with storing the wine is an expense that can be deducted off of your net proceeds from the auction sale. Maybe it was someone on our street corner that told me that. Anyway, that is a bit easier to figure if you pay for offsite storage…only a bit, because I imagine that only the % of wine bottles that you are selling out of the total you are storing can be considered an expense to be deducted from what you net at auction. It gets even more complicated if you are storing in a home cellar, and even more so considering that the bottles’ “storage expense” varies in the different lengths of times that you have stored them since purchase. It is hard enough to figure out the purchase prices for all these wines.

I suppose that many people may not have reported these gains in the past, and perhaps if it is $500 or $5000 in sales it is easily ignored, but if a wire of $50K or $100K hits your bank account, and nowadays a 1099 is issued by the auction house, as I understand is now required, then I suppose these things cannot be ignored.

[Dav3_Dyr0ff]

This isn’t advice, and the best the best advice is probably to get professional advice, but if I were to do it myself without professional advice, I would come up with a supportable good faith estimate for dollars per bottle per year in storage costs and an estimate as to how long I had stored each bottle sold, and deduct the storage cost that way. If I separately insured my wine while storing it, I’d deduct that too.

[Al_Osterheld]

I would think it might be different if you regularly sell wine to make money, vs collect wine mostly to drink and then sell some to thin the cellar. But, it’s an area that’s not straightforward to understand the few times I attempted to research.

-Al