What's the Tax Bill For Finding $10 Million in Buried Treasure?

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.

Finders keepers
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 gold prices, 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 time.

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 this April.

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 SPDR Gold (NYSEMKT: GLD  ) and iShares Silver (NYSEMKT: SLV  ) . But the desire for anonymity could lead them to avoid the tax litigation that would almost certainly ensue if they claimed the lower rate.

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.

Protect my hard-earned wealth from Uncle Sam

Read/Post Comments (4) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 08, 2014, at 2:47 PM, GaryDMN wrote:

    They won't own any taxes, if they don't sell the coins.

  • Report this Comment On March 09, 2014, at 11:00 AM, bigjohn327 wrote:

    not true the coins are considered income in the year aquired,,,,,or 2013,,,,,,,,this is the price you pay for opening your fool mouth,,,,I hope it was worth it,,,,,,they easily could have sold most of the coins over time and paid the taxes over time instead now they will have to sell most all of them just to pay the tax bill

  • Report this Comment On March 09, 2014, at 12:02 PM, TreasureGuy wrote:

    The finders won't gross $10M. The coin dealer staging the sale will take a significant cut. The Internet seller will take a cut, as well.

    Those two, combined, could be 40% off the top.

    The interesting question is - can the finders deduct those costs as business expenses? They owe income tax on the value of the find - not what they got for it when they sold it.

  • Report this Comment On March 09, 2014, at 3:43 PM, california22 wrote:

    i'm glad to read this article, these poor people wont get even a quarter of what they just found, i suggest to them not sell it, and keep it as a collector, them travel to another country and make the sale, IRS law is so convenient for the goverment, what they really want is take a big cut of everything, in this case that-s not a property , i dont see the point to pay any f//cking tax

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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