In 1969, John McCaw of San Diego bought a guitar from a friend for about $175.
The friend first bought the guitar at a pawn shop. McCaw later learned that the Gibson J-160E guitar was previously owned by John Lennon of the Beatles. Lennon used the guitar from 1962-63 before it was stolen before a show in London. Cut to about 50 years later, and the guitar recently sold at an auction for $2.1 million.
Of course, McCaw’s windfall from the auction is now subject to taxation by the IRS. Observers say that the tax rate on collectibles is 28 percent and that the tax rate on the sale of most other assets by individuals is 20 percent. At 28 percent, the tax would be roughly $588,000. At 20 percent, the tax would be roughly $420,000, a $168,000.00 difference.
McCaw played the scratched and beaten-up guitar intermittently during the 46-year period in which he owned it and kept it in his closet most of the time. He did not learn the guitar was previously owned by John Lennon until shortly before it was sold. We are certain that the “Taxman” will be keeping an eye on Mr. McCaw’s tax returns and will get what it feels is its fair share.
If you’re selling a valuable collectible, make sure to consult a tax attorney for advice before the sale.