Sports Memorabilia and Health Care Reform

An article published in the Bradenton Herald on Thursday highlights one of the interesting, if not unintended, consequences of the new Medicare taxes that the Patient Protection and Affordable Care Act is set to levy beginning in 2013.

Sports memorabilia enthusiasts may have noticed the recent surge of high-dollar collectibles flooding auction houses: Bobby Knight's NCAA Championship rings; Don Larsen's New York Yankees pinstripes; even Evander Holyfield's heavyweight boxing championship belts.

Perhaps not so coincidentally, these valuable items are hitting the auction market right before January 1st, when a new 3.8 percent Medicare tax on investment income will take effect for high-income individuals. As mentioned in the article:

"And starting Jan. 1, there will be a new Medicare tax on income from investments for higher-earning people. The IRS hasn't issued rules yet, so money from the sale of collectibles may be subject to the new levy. "The 3.8 percent Medicare tax would probably be the thing that immediately popped into my mind in terms of what folks may be thinking about," said David Boyle, Americas director of personal financial services for the accounting firm Ernst & Young."

Currently, income generated from collectibles held for more than a year is eligible to be taxed at a rate of 28 percent. So, if I'm a wealthy individual who bought Babe Ruth's 1920 uniform for $4.4 million and sold it a few years later for $5 million, I could owe 28 percent of the difference in capital gains taxes. With the PPACA's passage, that amount could increase by 3.8 percent beginning in 2013.

The new Medicare tax, combined with the possibility of Bush-era tax cuts expiring and the estate tax, apparently has some athletes and sports figures more closely examining the benefits of cashing in on their most sought-after mementos sooner rather than later.