Tax Obligations for Found Money and Other Treasure
Once upon a time in 1957, a couple by the name of Cesarini purchased a used piano at auction. Several years later, while cleaning it, they found a stash of cash amounting to $4,467 inside the instrument.
Learn: 12 Types of Passive Income That Aren’t Taxable
More: 3 Signs You’re Serious About Raising Your Credit Score
Responsibly, they declared the income on their 1964 income tax return. But a year later, the couple thought again and decided the money shouldn’t be taxable after all. So they filed an amended return requesting a refund from the government in the amount of $836.51. The IRS shot them down and said the money was taxable income.
The moral of the story? Pretty much all income, even if you find it sitting in a piano, is taxable by the IRS.
All Income Is Taxable Income
The IRS takes a hard stance on all money that falls into one’s lap — whether earned or stumbled upon.
“According to the IRS, taxpayers must record ‘any income from any source,’ unless it is expressly exempt from reporting under the U.S. Tax Code,” said Steven Holmes, the senior investment advisor at iCash.
“This includes a variety of other sources of income, such as winnings from gambling. There is no explicit exception for the money you find. Ordinary income is taxed as miscellaneous income. This means that even though it doesn’t look ‘ordinary’ in the usual sense, it is not subject to special tax rates. For example, if your yearly salary at work is $50,000 and $10,000 is discovered buried in a tin container. Your current annual income, before any deductions or credits you might be eligible for, is $60,000. Depending on the tax you are subject to, you will pay income taxes on this total income, less any deductions and credits.”
Tangible Property Is Taxable
Income also includes tangible property, by the IRS’s standards. Think jewelry, cars, real estate — and even that piano that the Cesarinis found the stash of cash in.
They’d owe taxes on the fair market value of the piano at the time they found it (had they not purchased it, but instead “found” it).
Take Our Poll: How Much of a Tax Refund Do You Expect in 2023?
The IRS Uses Fair Market Value
How do you know the amount to pay in taxes for these found treasures or cash?
“According to the IRS, fair market value is the price that a person of reasonable means would be expected to pay for a given item in its current condition if neither the buyer nor the seller was under any pressure to complete the transaction,” Holmes said. “Whether or not you sell the found object has no bearing on the fair market value requirement. Even if you choose to merely keep and use the thing you find, the value of it is taxable.”
Tax Implications for Selling Found Treasures
Are there any tax implications for selling found treasures? Indeed there are.
“If the value of the item has increased since it was found, the difference in value could be considered a capital gain and taxed accordingly,” said Michael Ryan, a financial coach.
Responsibility To Report Found Treasure to the Government
We may wonder, philosophically, about our responsibilities to report a found diamond necklace or a suitcase full of cash to the local authorities; but we should also be wondering about our responsibilities to report such items to the IRS, because the burden to do so is steep. And the consequences of not doing so are extreme.
“Individuals who have found money and other treasure are responsible for reporting it to the IRS as taxable income,” Ryan said. “This should be done on the individual’s tax return for the year in which the money or property was found. Failing to report found money and other treasure to the IRS can result in penalties, fines and even criminal charges for tax evasion.”
How To Report Found Money and Other Treasure
What is the process for reporting found money and other treasure on tax returns?
“The process for reporting found money and other treasure on tax returns involves reporting the income on Line 21 of Form 1040,” Ryan said. “The fair market value of the item should be listed as the amount of income received.”
Ensuring Compliance With Tax Laws
If you find money or other treasure, it’s important not only to report the discovery — with fair market value — but to ensure compliance with all tax laws. Here’s what to do.
“Some tips for individuals who have found money and other treasure to ensure compliance with tax laws include keeping detailed records of the value and date of the item, reporting the income on their tax return, and seeking the advice of a tax professional if there are any questions or concerns,” Ryan said.
More From GOBankingRates