A & B are avid antiques collectors. They regularly attend garage sales and flea
ID: 2427611 • Letter: A
Question
A & B are avid antiques collectors. They regularly attend garage sales and flea markets and purchase lots of old stuff. In 2014, they purchased a very old desk for $600. The desk was in poor shape and required rehabilitation. It sat in their garage for more than a year. Kim was taking the desk apart when she found an envelope jammed into a dark recess of the desk. She opened the envelope and much to her surprise, found a very rare Picasso painting.
A was very excited by the discovery of this historical treasure. A &B contacted Sotheby’s, the auction house, to get an appraisal for the painting. In December 2015, Sotheby’s authenticated and appraised the painting at $1,350,000. In April of 2016, the painting was auctioned by Sotheby’s and fetched $1,650,000 net of fees and commissions. A & B received the money in May of 2016.
Your manager asked you to prepare a research memo indicating how A & B should treat the discovery of this painting for tax purposes. Specifically, you should indicate the following:
Do they have taxable income?
If so, when do they have taxable income and what amount?
What is the character of any income?
Explanation / Answer
Yes, they have a taxable income as they have to report the item they have found and also the value of it.
The taxable income will come into the picture only qhen they have sold the item and this happened in april 2016 and this 2 years from the time the desk is purchased and it comes under long term capital gain tax
Right know it is taxed at 28%
=0.28*(1650,000-600)=$461,832
This willl be characterized as passive income
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.