Bearer of rare 'One Ring' card from 'Lord of the Rings' lore could fetch $2 million and face hefty tax bill

The One Ring that collectors were coveting this summertime wasn't recovered successful Hobbiton oregon heavy successful the tunnels of the Misty Mountains; nor was it discovered successful the Elf stronghold of Rivendell, the realm of Gondor oregon adjacent beyond the Black Gates of Mordor.

It was found in Toronto last month.

And the ringing bearer — if they take to merchantability the "precious" — whitethorn beryllium a hefty taxation measure on the profits. Their taxation complaint could beryllium arsenic precocious arsenic 53.53%.

In this case, the One Ring isn't the carnal ringing forged by the Dark Lord Sauron successful the fires of Mount Doom and coveted by each mode of creatures successful Middle Earth, arsenic outlined successful the writer J.R.R. Tolkien's "The Lord of the Rings" trilogy.

Instead, it's an ultra-rare playing card successful "Magic: The Gathering."

Wizards of the Coast — the institution that created the Magic playing paper crippled successful 1993 — issued a "Lord of the Rings"-themed set successful June, and featured a "One of One Ring" promotion. One battalion contained "The One Ring," a serialized paper of which there's lone 1 successful existence.

Public bids for the one-of-a-kind paper — printed successful accepted foil and successful the Black Speech of Sauron utilizing Tengwar letterforms, according to Wizards of the Coast — person extended into the millions of dollars.

One would-be purchaser — Gremio de Dragones, a crippled store based successful Valencia, Spain — offered 2 cardinal euros, astir $2.2 cardinal oregon 2.9 cardinal Canadian dollars. (Its bid besides included question and lodging expenses and a escaped paella dinner.)

Another funny enactment — Dave & Adam's, a collectibles store adjacent Buffalo, New York — offered $1 million.

Wizards of the Coast, which is owned by Hasbro, confirmed the paper had been recovered arsenic of June 30. The finder — who remains anonymous — reportedly lives successful Toronto, the biggest metropolis successful Canada and the superior of the state of Ontario.

The likelihood of uncovering the paper were roughly 1 successful 3 million. (By comparison, the likelihood of winning the Powerball jackpot are about 1 successful 292 million.)

"To me, it's astir the equivalent of a lottery ticket," said Scott Plaskett, a Toronto-based certified fiscal planner and managing spouse and CEO astatine Ironshield Financial Planning.

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However, dissimilar lottery winnings — which are tax-free successful Canada — The One Ring's finder would mostly beryllium taxation connected profits incurred from a sale.

The U.S. besides imposes a taxation connected profits, known arsenic a "capital gains" tax. It applies to stocks, bonds, existent estate, collectibles and different assets.

In some countries, the taxation is judged connected "cost basis," a word that refers to the archetypal acquisition price. The nett net is the leftover sum aft subtracting the outgo ground and different imaginable enactment items similar costs incurred by the seller (like a broker's fee, for example).

But the Canadian and U.S. taxation systems disagree successful however they levy a superior gains tax.

The Canadian who acquired The One Ring paper would astir apt wage taxation connected fractional their profits. The remainder would beryllium tax-free, experts said.

This is owed to Canada's usage of an "inclusion rate." Depending connected the scenario, lone a information of profits are typically counted (i.e., included) arsenic taxable income.

The stock depends connected however the paper was acquired, Plaskett said. The inclusion complaint is mostly 50% — and that would apt use successful this scenario, helium said.

If The One Ring paper were sold for 2 cardinal euros — which appears to beryllium the existent apical bid — past 1 cardinal euros (about CA$1.46 million) would beryllium taxable.

"We utilized to bash it that mode successful the U.S. but changed it a fig of years ago," Howard Gleckman, elder chap astatine the Urban-Brookings Tax Policy Center, said of omitting a stock of profits from tax.  

But what's Canada's taxation complaint connected the profits?

Due to the ample sum of wealth involved, the seller would apt beryllium taxed astatine Canada's apical income taxation rate, experts said.

In Ontario, the top taxation rate is 53.53%. This includes some national and provincial taxes.

Because conscionable fractional of the seller's nett would beryllium taxed successful this example, the individual's back-of-the-envelope effectual taxation complaint connected the transaction would beryllium astir 26.8% (or, fractional of 53.53%). The full taxation measure could truthful beryllium up to astir CA$780,000 in this illustration (which translates to astir $588,000.)

(In reality, the effectual taxation complaint would beryllium somewhat little since Canada's income taxation strategy is progressive, arsenic successful the U.S., experts said. That means most, but not all, of the profits present would taxed astatine the apical rate.)

There are alternate taxation scenarios, however, experts said.

For example, if The One Ring paper were accidentally dropped by its proprietor and past subsequently picked up connected the thoroughfare by idiosyncratic else, the method of acquisition would change, Plaskett said.

The inclusion complaint would apt leap to 100% successful this lawsuit — meaning each the profits would beryllium taxed astatine 53.53%, doubling the full taxation bill, helium said.

In immoderate cases, Canadian instrumentality besides taxes 100% of the profits (instead of 50%) depending connected a seller's intent, said John Oakey, vice president of taxation astatine Chartered Professional Accountants Canada.

For example, if the idiosyncratic who recovered The One Ring paper were the proprietor of a collectible store — and buying and selling cards was their concern — a merchantability whitethorn beryllium intended arsenic a concern transaction, successful which lawsuit each the profits would beryllium taxed.

There's immoderate ambiguity here, though, Oakey said. For example, what if the card's proprietor — adjacent if it was a hobbyist collector — enactment sizeable effort into maximizing their nett by, among different things, proactively soliciting bids from galore imaginable buyers?

The Canada Revenue Agency (Canada's equivalent to the IRS) might besides dainty the sale arsenic a concern transaction successful this lawsuit — successful which lawsuit the afloat CA$2.9 cardinal would beryllium taxed astatine 53.53%.

"It's a subjective area," Oakey said. "It's not achromatic and white."

In immoderate ways, the U.S. strategy is much concrete, helium said.

That's due to the fact that preferential superior gains taxation attraction successful the U.S. is based connected duration.

If an plus similar a banal is bought and held for a twelvemonth oregon less, profits don't get preferential treatment. They're treated arsenic a "short term" superior gain, taxed astatine mean income taxation rates, which are arsenic precocious arsenic 37% astatine the national level.

A "long term" superior summation applies to assets held for much than a year. They get preferential treatment.

Here, there's a distinction betwixt collectibles and assets similar stocks, however. Stocks are taxed astatine a apical semipermanent national superior gains taxation complaint of 20%; but collectibles have a apical complaint of 28%. (In some cases, there's besides a 3.8% net concern income tax for precocious earners, successful summation to immoderate authorities and section taxes connected superior gains.)

The One Ring paper would "almost decidedly beryllium deemed a collectible," said Joe Hughes, national argumentation expert astatine the Institute connected Taxation and Economic Policy.

For example, a seller successful Michigan would wage a apical semipermanent superior gains complaint of astir 36% connected a collectible item, Hughes said. The unsmooth full taxation measure connected the $2.2 cardinal apical bid would beryllium astir $792,000 successful this example.

In a authorities similar Tennessee, which doesn't levy a authorities income tax, the apical semipermanent superior gains complaint would beryllium 31.8%.

In different words: The ringing bearer would look to fare amended successful Canada implicit the U.S. — from the position of taxation rates, anyway.

Of course, whether Ringwraiths descend upon the ringing bearer from the lair of Minas Morgul, oregon whether men ensnared by the evil, corrupting grip of the ringing effort to snatch it from the ringing bearer's grasp, this work cannot say.