Taxpayers sometimes decide to sell their personal jewelry for one reason or another. This could be due to a broken engagement, a piece not suiting their tastes, financial hardship, or something else entirely. Regardless of the reason, however, there are tax implications that come with selling fine jewelry crafted from precious metals.

Generally, personal jewelry is excluded from the definition of a collectible and is taxed as the sale of personal property. This would presumably include silverware and silver service pieces not considered antiques. Excluded from this category would be jewelry that includes gold or silver coins that are classified as collectibles.

Property held for personal use is a capital asset (Code Sec. 1221). Personal use property is treated as follows for tax purposes:

Thus, clients who sell their jewelry would treat any gain as a capital gain on Form 8949 (Schedule D), and be eligible for the preferential capital gains rate if the jewelry was held for over one year.

Establishing basis for the jewelry sold can be an issue. Foreseeing an economic climate where jewelry is worth far more than its original purchase price isn’t something most individuals think about when they acquire jewelry, so very few people will have kept receipts or other documentation for the purchase, inherited value, or the donor’s basis in the case of a gift.

The following table may assist you in determining a basis at least for the value of the gold content of the jewelry.One could take the position that, for example, if the jewelry they sold netted 10 ounces of gold, then the basis generally cannot be less than the cost of ten ounces of gold in the year purchased.  Of course, you would have to somehow tie the date to some event such as a special birthday, wedding, anniversary, etc., and convince an IRS examiner to accept this approach. Absent a verifiable basis, cost will be considered zero and the entire proceeds of the sale (minus any applicable selling expenses) will be taxable.