Out of the many kinds of coin collecting that exist, rare coin collecting happens to be among the most fascinating. 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 collection is a fascinating way of making money, and if you happen to be new to coin collecting should consider buying a coin collector’s book that explains the value of various kinds; both worn out and in mint condition. New coin collectors are vulnerable to exploitation by vendors that sell their old coins for inexpensive prices. The term rare coin does not merely imply that the coin is old, it is also determined by the condition the coin is in. According to some experts, coin collection cannot only be an enjoyable and profitable activity, it will also provide 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. For people residing in states with high-single digits sales tax rates, this could translate into substantial savings. 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. In that sense, rare coins greatly differ from jewellery and watches which get purchased as luxury commodities since the tax treatment for this is consumer purchases whereas rare coins get treated as investments, hence no sales tax.
Most people that invest in real estate are conversant with section 1031 of the IRS code which allows like-kind exchanges i.e. property owners are allowed to trade appreciated properties without triggering any tax liabilities. Similar to real estate investors, rare coin collectors are allowed to make exchanges subject to section 1031 of the IRS code, but similar to real estate, to achieve any tax deferral they have to comply with the regulations. Investors therefore are only allowed to exchange bullion coins with bullion coins and rare coins with rare coins.
The expenses incurred via coin collection e.g. insurance, journals, travel to conventions, security and grading fees are treated differently depending on whether the coin owner is an investor, dealer or collector. Despite being liable for taxes on gains, collectors are considered as hobbyists by the IRS, who merely collect coins for enjoyment.