Finding buried treasure might sound like a childhood dream.
But for one California couple, that dream came true last year
when they made a surprising find in their backyard. Still, as
fantastic as the situation sounds, harsh reality is about to set
in for these lucky discoverers -- in the form of what could be a
huge tax bill.
Gold dollar of the same type as those found in the Saddle
Ridge Find. Image source: Wikimedia Commons, courtesy Lost
Dutchman Rare Coins.
The story of the as-yet unidentified couple almost defies belief.
According to reports, the couple had walked by the place where
they eventually found the coins countless times before making the
discovery about a year ago. What they found has now been named
the Saddle Ridge Hoard, consisting of more than 1,400 gold coins
from the 19th century. At current
, the coins would be worth about $2 million melted down. But
coin-collecting experts say that because of the rarity of finding
coins from the 1840s through the 1890s in such good condition,
the true value of the find could be more than $10 million.
Through the numismatic expert that they hired to evaluate the
coins, the couple has said that after allowing a coin-collecting
group to exhibit some of their find, they will sell most of the
coins, donating some of their profits to charity and using the
rest to help them keep their property.
At first, some speculated that the find might have been
property stolen from the San Francisco Mint in 1901. If it had
been found to be stolen, then the couple might not have received
anything. But authorities from the U.S. Mint have said that
they've found no evidence of a link between the discovery and the
theft, and the Mint doesn't plan to investigate further at this
What the IRS gets
Unfortunately for the California couple, tax authorities will end
up being big winners from their find as well. According to
federal tax law, when you find lost or abandoned property, you
have to pay tax on it as income equal to its value in the first
year you take full possession of it. If there had been a court
battle disputing the couple's right to the coins, they might have
been able to defer paying tax until the dispute had ended. But
with the Mint backing down and no other claims as yet having
happened, it's likely that the couple will owe tax as early as
IRS Building, Washington, D.C. Source: Library of Congress.
As for what tax rate the couple will pay, the size of the find
suggests that most of the income will be subject to the top tax
rate. According to a report from the
San Francisco Chronicle
, the couple would have at least an argument that lower
capital-gains rates of 28% should apply, which currently applies
to gold coins held for investment as well as bullion ETFs
. But the desire for anonymity could lead them to avoid the tax
litigation that would almost certainly ensue if they claimed the
As a result, the couple will likely owe ordinary income tax at
39.6% federally for most of the find, combined with 13.3%
California state income tax. The couple will get a partial break
because state income tax is allowed as a deduction on your
federal tax return, but the net result will be that the couple
will get to keep just barely over half of its find, with roughly
$4.7 million out of the $10 million going to the U.S. Treasury
and the State of California.
Keep the tax man in mind
Buried treasure isn't the only situation in which the IRS wants
its fair share. Indeed, in many more common situations involving
big winnings, the IRS gets its cut before you even get your hands
on the money. For instance, with lottery awards, prizes over
$5,000 are subject to federal withholding of 25% of the prize
amount, and other states withhold additional amounts based on
their prevailing tax rates. Similarly, casinos are required to
withhold tax on big wins, with amounts varying depending on the
particular game involved. Yet it's important to remember that the
amount withheld doesn't necessarily match up with the tax owed,
and you could end up owing an additional amount at tax time.
An unexpected discovery or big-money win is always welcome
news. Just bear in mind that it's also good news for the IRS, and
be sure not to spend its share as well as your own.
Another tax this couple will have to deal with
Even after paying income tax, these newfound millionaires could
owe yet another tax that could take as much as 40% out of their
pockets -- if they don't property prepare.
Fortunately, The Motley Fool recently uncovered an arsenal
of little-known loopholes they can use to protect themselves
from this tax and help keep the taxman at bay when he
inevitably comes calling. You can use the same tips for your
taxes. We reveal them all in a brand-new special report. Simply
click the link below for instant, 100% free access.
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