What type of income is generated from the sale of a rare collectible by an individual?

The income generated from the sale of a rare collectible by an individual qualifies as capital gain income. When a collectible is sold for a profit, the increase in value from its original purchase price to the selling price is considered a capital gain. This is consistent with how the IRS treats various types of asset sales, where the profit realized from selling an asset that is not classified as inventory or held primarily for sale in the ordinary course of business results in a capital gain.

Collectibles are defined by the IRS to include items such as art, stamps, coins, and other tangible personal property that is not commonly traded. When these items are sold, if they appreciate in value, the gain is subject to capital gains tax treatment, which can differ from ordinary income tax rates. This taxation framework encourages investment and allows for the recognition of profit based on the appreciation of the asset.

In this context, understanding that the nature of the asset influences how the income is classified helps clear up distinctions from other income types. Ordinary income typically refers to wages or salaries earned from employment, while self-employment income pertains to earnings generated from one’s own business activities. Tax-exempt income, on the other hand, includes certain types of income that are not subject to taxation, which does