He Sold His Coin Collection for $60,000 and Owed 28%. His Neighbor Sold a Losing One and Couldn’t Deduct a Dime.

Two retired neighbors on the same street sold coin collections in the same tax year. One got a check for $60,000 and a federal tax bill figured at the highest rate the code charges on long-term collectibles gains. The other sold at a loss and learned that, for a personal-use collection, the IRS gives that loss no tax value at all. Both stories are illustrations, built to show one feature of the tax code: the code taxes the gain and ignores the loss.

Why Coins Count as Collectibles in Federal Tax Law

Before any rate applies, you have to know which regime governs the sale. Coins are named directly in the statute. Under 26 U.S.C. § 408(m)(2), the term “collectible” covers “any work of art,” “any rug or antique,” “any metal or gem,” “any stamp or coin,” and “any alcoholic beverage”, plus other tangible property the Treasury specifies. Farm equipment, vehicles, firearms and real estate generally sit outside that list, so a sale of those assets has to be analyzed under different rules.

Section 408(m) also has a carve-out that matters to anyone holding metals in a retirement account. Under § 408(m)(3), certain gold, silver and platinum coins described in 31 U.S.C. 5112, coins issued under the laws of any State, and bullion that meets contract-market fineness standards and is “in the physical possession of a trustee” are excluded from the collectible definition for IRA purposes. So those specific holdings don’t trigger the deemed-distribution rule.

That exception stops at the IRA, though. The capital gains provision defines collectibles gain by reference to section 408(m) “without regard to paragraph (3) thereof” under § 1(h)(5)(A). If a collector sells U.S. Mint bullion coins from a taxable account, the gain is still collectibles gain.

Neighbor One: A $60,000 Sale Taxed at 28%

The first neighbor, a retired engineer, built his collection for about $15,000 and held it for decades. He sold it for $60,000, which leaves a long-term gain of $45,000.

The statute puts collectibles gain in a separate category called “28-percent rate gain” under § 1(h)(4), and taxes it at 28% under § 1(h)(1)(F). IRS Publication 550 lists the maximum capital gain rates as 0%, 15%, 20%, 25%, and 28%. The 28% level is the top one, reserved for collectibles and part of qualified small business stock gain.

That 28% figure is a ceiling. The IRS says that “if you are otherwise subject to a rate lower than 28%, the 28% rate does not apply.” The engineer pays the full rate because his pension, required minimum distributions and portfolio income place the couple in the 32% bracket. For married couples filing jointly in 2025, that bracket ran from $394,601 to $501,050. At 28%, his gain produces about $12,600 in federal tax. A couple in the 24% bracket ($206,701 to $394,600) would owe closer to $10,800 on the same gain, before accounting for how income falls across brackets.

Neighbor Two: A Losing Collection and No Deduction

The second neighbor, a retired teacher, spent about $40,000 on coins over the years, mostly near market peaks. She sold for $25,000, a loss of $15,000.

IRS Publication 525 covers her situation directly: “If you collect stamps, coins, or other items as a hobby for recreation and pleasure, and you sell any of the items, your gain is taxable as a capital gain. However, if you sell items from your collection at a loss, you can’t deduct the loss.” The same publication adds that “losses from a hobby aren’t deductible from other income.”

The rule comes from § 165(c), which limits an individual’s deductible losses to “losses incurred in a trade or business,” losses from “any transaction entered into for profit,” and casualty or theft losses. A hobby collection doesn’t fit any of the three. Her $15,000 loss doesn’t offset other gains, doesn’t reduce ordinary income and doesn’t carry forward.

How Hobby Versus Investment Changes the Result

What separates the two outcomes is the purpose behind the purchase. Section 165(c)(2) allows losses from transactions entered into for profit. A collector who can show the coins were bought as an investment may have a deductible collectibles loss, and the statute nets “collectibles loss” against collectibles gain inside the 28% category.

Records are what support an investment claim: purchase invoices, dealer rating, professional appraisals, insured storage and a history of buying and selling based on price. Coins kept in a desk drawer for the pleasure of having them look like a hobby, and that label decides how a loss is treated.

What Retirees Should Check Before Selling

• Holding period: Collectibles gain treatment applies to assets “held for more than 1 year.” Shorter holdings are taxed as short-term gain.
• Basis records: Without proof of cost, the IRS can treat the full sale price as gain.
• Bracket position: The 28% rate only applies when your ordinary rate would be higher. Lower-bracket sellers pay less.
• IRA holdings: Under § 408(m)(1), an IRA’s purchase of a collectible is treated as a distribution equal to its cost, unless the asset qualifies under the § 408(m)(3) exception.
• Ripple effects: A large gain increases adjusted gross income, and AGI feeds into Medicare IRMAA surcharges and the taxation of Social Security benefits. Check the current Medicare and Social Security thresholds before setting the timing of a sale.

The engineer and the teacher bought the same kind of asset. The code taxed one sale and gave the other no relief, and the difference came down to classification and paperwork, both of which have to be settled before a coin goes to auction. (This asymmetry is one of nine IRS rules that quietly drain retirement accounts, all charted in our free tax trap map.)

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