Collecting rare coins is a fascinating hobby since it happens to be among the many existing kinds of coin collecting. The majority of rare coins get valued based on the amount of bullion contained in them i.e. silver, copper or gold. Different kinds of coins contain varying percentages of other kinds of metals such as zinc and nickel. Rare coin collecting happens to be an interesting way of making money, and if you happen to be relatively new at it then you should consider purchasing a coin collector’s book that explains the value of various coins whether worn out or in mint condition. New coin collectors may get exploited by vendors offering old coins for inexpensive prices. The term rare coin isn’t used to imply that the coin is old, it is also set by the kind of condition the coin is in. Some experts argue that rare coin collection happens to be not only an enjoyable and potentially profitable venture, collecting rare coins is capable of providing its investors tax Benefits. Discussed below are some of the tax benefits that can be derived from such collectibles.
The fact that purchases from local dealers could be exempted from state sales tax is an advantage with immediate impact on the cost of rare coins. This could lead to savings substantially for people residing in states with high sales tax rates. The exemptions are quite practical since people no longer have to prioritize out-of-state dealers in a bid to avoid local sales tax, since they can work with dealers within their own state. On that note, rare coins are different from jewellery and watches which people may purchase as luxury items, because while those gets taxed as consumer purchases, rare coins get treated as investments hence no sales tax.
Most people that invest in real estate are familiar with section 1031 of the IRS code which allows like-kind exchanges, where property owners are allowed to trade appreciated properties without incurring any tax liabilities. Likewise, rare coin collectors are allowed to make section 1031 exchanges however, similar to real estate, the key to deferring tax is compliance to the regulations. Investors therefore are only allowed to exchange bullion coins with bullion coins and rare coins with rare coins.
Coin collections can lead to expenses such as insurance, trading fees, travel to conventions, journals and security, whose treatment is dependent on whether the owner is a dealer, investor or collector. Since collectors are considered as hobbyists by the IRS, they have a limited ability to claim expenses despite being liable for taxes on gains.