Oregon Tax Consultants Practice Exam

How is the sale of a coin collection reported?

1. As ordinary income

2. As a capital gain

3. As hobby income

4. As tax-exempt income

The correct answer is: As a capital gain

The sale of a coin collection is reported as a capital gain because it typically involves the exchange of a collectible asset that has increased in value since its acquisition. In tax terms, collectibles like coins are classified under capital assets, and the profit from their sale is treated as a capital gain. When an individual sells a coin collection for more than its original purchase price, the difference represents a gain that is subject to capital gains tax. This taxation can vary depending on how long the coins were held before they were sold; if the coins were held for more than one year, they would qualify for long-term capital gains rates, which are generally lower than ordinary income tax rates. If held for a shorter period, short-term capital gains rates apply, typically taxed at the same rate as ordinary income. In contrast, ordinary income classifications apply to earnings from regular business activities or services rendered, hobby income reflects activities conducted more for pleasure than profit, and tax-exempt income pertains to specific categories of income that are not subject to tax. Hence, reporting the sale of a coin collection as a capital gain aligns with tax laws governing the selling of capital assets.