John started collecting model airplanes when he was just a young boy. His collection consists of over 500 model airplanes, most of which were received as birthday gifts. He is retiring this year and needs to downsize; therefore, he has decided to sell his collection. He lists the model airplanes on an Internet auction site and receives an offer of $50,000 for the model airplane collection. John sells the entire collection, except for the 3 newest airplanes purchased in the last year. The remaining airplanes had all been owned by John for over a year.

1. Discuss the tax factors John needs to consider in deciding how to report the sale.