Tax on Sale of a Musical Instrument

[AtlantaTed]

My parents purchased a professional musical instrument for me  fifty years ago for approximately $700 and am currently looking to sell my instrument to a Music Store. The estimated value and sale price would be in the $6,000 range.

I am not a professional musician and gain no income from this instrument. What are my Federal and State (Georgia) liabilities? If taxes are due, am I required to pay them that quarter or file at the end of the year? Does the store need to provide me with some kind of IRS form?

Thanks.

[SweetieJean]

Please see this re Federal:

If I sell a musical instrument for 50,000.00, what taxes will I pay? (intuit.com)

Unless you meet one of the requirements Safe Harbor rules to avoid penalties and interest, you might wish to make an estimated tax payment at the time of the sale. 

[Hal_Al]

The reference link at the other post discusses tax on collectibles, which is different from tax on ordinary capital gains.

It's not clear whether your instrument is a collectible or has simply abbreviated in value, because a replacement would cost that much. You need to make that determination. The Music store should be able to tell you that  (do they intend to sell it as a collectible or as an instrument for use). 

[SweetieJean]

The linked answer states this:

Antiques are considered to be collectibles.

OP's instrument is older than the one cited in the link.  But in any case, it may be hard to prove the original cost.

[Opus 17]

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@SweetieJean wrote:

The linked answer states this:

Antiques are considered to be collectibles.

OP's instrument is older than the one cited in the link.  But in any case, it may be hard to prove the original cost.

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The US customs service definition of an antique is something that is more than 100 years old.

If the instrument is not 100 year old, then the sale will be a long-term capital gain.  If you were a professional musician, and never depreciated the original $700 cost, your cost basis is $700 and your capital gain will be about $5300, which will be taxed as a long-term capital gain at a lower rate (zero, 15% or 20% depending on your other income).

If the instrument is overall more than 100 years old, and you have not been using it professionally, then I would agree it is a "collectible" and is taxed at a higher rate (your regular income tax rate up to a maximum of 28%).  Most people's regular tax rate is 22% or 24%.  Again, only the gain is taxed.

If you previously were a professional musician, then you could or should have depreciated the instrument on your tax return during the years you were a professional.  That changes your cost basis and we need to know more details about your career.  Also, if you were previously a professional musician, I am not entirely sure that the instrument would be a "collectible" even if it were older than 100 years.  I'm not sure the regulations contemplate taxing a working piece of business property the same as if it were under glass in a museum somewhere.  But I would have to do more research on this. 

If you have a $5300 or $6000 lump sum of income during the year, you may be required to make an estimated tax payment to avoid a penalty.  20% is a safe estimate for the IRS (it's close enough to avoid a penalty no matter what rate you end up paying), and 5% for Georgia.  You can make a payment to the IRS at www.irs.gov/payments.  You will have to look up Georgia's tax web site yourself.   Your actual tax is calculated on your tax return at the end of the year, taking all your income, deductions and credits into account, and if you paid too much or too little, you will get a refund or owe more tax when you file. 

[AtlantaTed]

Thank you for that wonderfully detailed reply.

I am not a professional musician only a non-paid amateur. My parents purchased the instrument for me (I was in my teens) new around 1972, so it is fifty years old. It is a discontinued model and is highly sought after by pros.

Appears it will likely sell for between $6K-$6.5K. I’m not sure if I need to report the sale this quarter or year end, or if at all.

thanks for everyone’s feedback. Much appreciated.

[Opus 17]

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@AtlantaTed wrote:

Thank you for that wonderfully detailed reply.

I am not a professional musician only a non-paid amateur. My parents purchased the instrument for me (I was in my teens) new around 1972, so it is fifty years old. It is a discontinued model and is highly sought after by pros.

Appears it will likely sell for between $6K-$6.5K. I’m not sure if I need to report the sale this quarter or year end, or if at all.

thanks for everyone’s feedback. Much appreciated.

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Under the circumstances you describe, it might be a "collectible" even if it is not an antique.  The problem is, the definition of a collectible is "anything the IRS designates as a collectible" (plus, a few specific items, but the list of specifics does not include musical instruments).  And I can't find an authoritative list of what the IRS considers collectible.  You will probably have to make your own determination.  If you decide the item is a collectible, you will indicate that in Turbotax and pay the higher tax rate.  If you don't indicate that it is a collectible, you will pay a lower tax rate (15% or 20% instead of 22% or 28%).  Then if audited, you would need to make an argument of why it is not a collectible (such as, it was sold to a working musician, perhaps.). Most people are never audited. 

If you decide to pay estimated taxes, the schedule is as follows

Income received	estimated payment due
Jan 1-March 31	April 15
April-May	June 15
June-August	Sept 15
Sept-Dec	Jan 15

[DrakeHeyman]

The tax situation might depend on various factors, like your state's laws and your overall income. It's a good idea to check with a tax pro or use tax software to get accurate advice. In some cases, you might owe capital gains tax on the profit from the sale, but there could be exemptions too. As for the timing, taxes are usually due in quarters for freelancers and self-employed folks, but for this sale, it might be different. Again, checking with a tax expert is your best bet. As for the store providing you with an IRS form, it could be a 1099-B if they report the sale, but it's always good to ask them directly. Selling a musical instrument can be a great opportunity, just like my Irish bouzouki adventure! I found one bouzouki sale, and also I've been looking for some info regarding taxes.