Treasure Hunters Beware: Uncle Sam Wants a Cut of Your Loot
Uncle Sam wants a piece of your treasure. If you make a valuable discovery, whether it’s gold coins, meteorites, or cash, you will likely owe taxes on that haul. This is because the basic premise of tax law states that income is taxable unless specifically excluded or deferred by the Internal Revenue Code. Unfortunately, there is no “treasure-hunter exclusion” that allows you to avoid taxes on your findings. As a result, the found property is considered “miscellaneous income” and subject to ordinary-income tax rates, which can be as high as 37%.
The Case that Established Taxation of Found Property
The taxation of found property dates back to a court case in the 1960s. A married couple, the Cesarinis, bought a used piano in 1957 and later discovered $4,467 of old currency inside. They paid income tax on the find but later sought a refund, arguing that it wasn’t taxable income. However, the court ruled in favor of the IRS, solidifying the taxation of found property.
Valuable Discoveries Happen More Often Than You Think
Valuable discoveries are more common than people realize. Examples include a man finding Civil War-era gold coins worth over $1 million in a Kentucky cornfield, a meteorite landing near the U.S.-Canada border prompting a $25,000 reward, and a Michigan man finding $43,000 hidden in a donated couch. The same tax concept applies to sports memorabilia, game show winnings, and other valuable finds.
Legal Ownership and Tax Implications
One challenge when it comes to found property is establishing legal ownership. If you don’t legally own the item, you may have a difficult time claiming it as your own and will still be liable for taxes. Additionally, the date of legal acquisition determines the holding period and cost basis, which become important if you later decide to sell the object. If held for over a year, you may qualify for preferential tax rates on the profits. However, if held for a year or less, these preferential rates do not apply.
Hot Take
When it comes to found treasure, it’s important to remember that Uncle Sam will want a share. Whether it’s gold coins, meteorites, or cash, the IRS considers it taxable income. So, before you embark on your treasure-hunting adventures, be prepared to pay your fair share of taxes on any valuable discoveries you make. Remember, it’s always better to be safe than sorry when it comes to Uncle Sam’s cut.
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