Accounting for Inflation

“Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.”
― Sam Ewing

Do you account for inflation when you track the value of your coin, or the price you paid for your coin?

If you don't - you should. Let me tell you why. Let's say that you bought a coin on the day I was born, in 1985. Let's say you paid $100 for that coin. In 2020, that same $100 would have the same purchasing power as $240 dollars.

Now, let's say you sold that coin tomorrow for $150. If you weren't tracking inflation, you might think to yourself that you made $50 on that coin. You might be feeling pretty good about your purchase. After all, that's 150% of the purchase price!

Unfortunately, your sale didn't keep up with inflation and you actually lost $90.

Now, for most of us, the financial aspect of our hobby is relatively insignificant. We buy and we sell coins, and we study and we talk about them because it is enjoyable and relaxing to us. Making money on these coins isn't a big deal, and losing a few dollars when we sell isn't really going to make a difference. However, for some of us, our collections are becoming a relatively significant financial commitment. I personally am not considering my hobby an investment - but I can't ignore the financial aspect of my collection. I have to treat my money wisely, and make decisions about how I spend and prioritize my money and savings and investments. For me, considering the cost of inflation and how it impacts my collection (especially when it comes time to sell), is a very important factor.

So, how do you calculate the inflation-adjusted cost of your coins? Well, there is a handy calculator available right here: https://www.usinflationcalculator.com/

However, I track my inventory in a highly customized Excel spreadsheet. What I've done is imported the data here into a tab in my spreadsheet: https://www.usinflationcalculator.c...and-annual-percent-changes-from-1913-to-2008/

To calculate the inflated cost, use the simple formula:

Inflated cost = Original cost * (Current year CPI / Original year CPI)

For each coin's entry in my spreadsheet, I record the original year of purchase, and the original purchase price. I then use the convenient "vlookup" formula in Excel to pull the data from the table and calculate the current years price.

As a younger collector, all of my large purchases have been in the past 10-15 years. However, even in the past 15 years there is an 8% difference between my original price and the inflated cost of my collection. That difference will only continue to grow. For some of you who have been collecting since the 60's (or maybe even earlier), this difference can be eye opening ($100 in 1965 would be $818 today...)

So, tell me - do you account for inflation when tracking your coins? Should you?

 

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Jason, let me ask you this. Suppose you paid $100 for a coin that, 35 years later, increased in value to $240. Now, if you decided to sell the coin but only received $150 for it, would you be able to write off the loss on your income taxes? ~ Chris

 

WAIT!!! WHAT??? You can sell coins that you’ve bought? lol

I have only sold 3 coins that I purchased, the rest I hoard, er, I mean collect.
All were under $30 and 2 of them were basically bullion.

edit: correction, I also sold 2 or 3 ASEs to friends/co-workers for like a $1 profit.

 

No, and that (allowing inflation adjustment when calculating capital gains) is something people have been lobbying for since at least the first Bush administration, and probably a lot longer than that.

 

You *should* be able to.

However, my understanding is that *currently* you are not allowed to - you have to use the original purchase price. In my mind, this is incredibly stupid and unfair.

 

Only informally, but that's one of the issues I always bring up when someone says "buy the key coins first before they go up in price".

Sure, it's painful to look at a 1965 Red Book and see the prices for a 1916-D dime or a 1909-S VDB cent. But if I'd been an adult at that time, my salary would've been 1/20 of its current nominal-dollar level, too.

If I could go back in a time machine and walk into a well-stocked coin store with my current nominal-dollar wealth -- well, they'd probably drag me into a nice, engaging chat, while someone ran to the back room to call the cops on this nutcase with funny money dated 2000-something.

 

It's too bad that you couldn't "gift it" to a relative and allow them to sell it on a stepped-up basis. ~ Chris

 

There is a body of evidence and opinion that I've read about in the WSJ for a long time that alleges that the government's official CPI is too large. I'm just a lowly engineer and not dour enough to be an economist (Economics-the dismal science) so don't ask me to explain it or justify the claim. I'm just saying that you may be overestimating the effects of the official inflation number.

You know, the way I view my hobby of collecting coins is that my cost of acquisition minus my value at time to sell is the rental cost of the asset. Thus, I am paying an annualized rent to indulge my hobby. I could do an Excel spreadsheet with annualized cost of capital, inflation, discount rates and etc. to come up with a yearly or even monthly cost of my hobby. But my un-official and strictly qualitative judgement is that I get more enjoyment value than I pay in "coin rent" and opportunity cost.

 

A few years back my state added a gasoline tax. The tax also came with the ability for business owners to write this added fuel tax off. I sat with my CPA and he took me through to volume of paperwork that I would have to subject myself to for what amounted to a $100.00 or so write off. It made no sense for me to do it....... I have never put an inventory together on my coins. After fifty years of accumulating, it would be a monumental task. Oh I started once and promptly gave up. I have only kept purchase records on silver & gold. Most of my coins I couldn’t begin to guess how much I paid. But then I am sure I hold several thousand twenty dollar or less coins. Maybe 75 with any real intrinsic value...... Perhaps one day I will get to retire and maybe resume an inventory once I have the luxury of spare time. Until then, I’ll just accept that any loss attributable to inflation is better a mystery for me!

 

I believe that is what happens upon death, but before then, we are stuck with the system that is currently in place.

We are allowed a certain amount that we can gift to someone before it becomes taxable, though. I think it is $10k or $15k per year. Don’t quote me on that, though, especially when it comes to base cost and coins.

 

That's really the best way to look at it. Worrying about inflation is for investments. The fact that there's the chance to get back "more" than you paid or a significant portion already puts it in unusual territory where most other hobbies and activities you basically get back nothing or very little. Sports gear loses tremendous value after being used for a couple years, movies/restaurants/theme parks money is all gone etc.

If anything instead of worrying about inflation if someone really wanted to worry about the money side of the hobby, time would be better spent learning how the market will view what they have

 

Why is it that everyone always thinks of going back in time? Isn't anyone worried that they will change history and cause havoc around the world? Me? I'd rather go forward in time to a date when no one has hit the Powerball for about 6 weeks and get the winning numbers for the next drawing. ~ Chris

 

Because while you're there you can buy a bunch of stocks super cheap and be rich when you come back

 

Sounds like you're thinking of Back to the Future Part II

 

There are a lot of good points here in this conversation. Kudos to @physics-fan3.14 for the advanced excel spreadsheet. I'm really starting to get into this type of thing and coding vba as well and I find it just as interesting as collecting coins to be honest. I would have immediately asked about the inflation in regards to taxes when you sell as well. I have another question. If you are a business owner, you can take off certain costs that are allowable. As an individual, could you take off the cost of say, storage, cost for travel to acquire your collection?

 

Gifts (estate distributions are a separate matter) are free from federal tax for the giver and receiver up to a maximum of $15K per person per year through 2026. As with all tax code, there are some caveats but that's the general rule as I have researched it. See your tax advisor.

One additional thought on using CPI (or any other general economy measure of inflation) in assessing increased nominal dollar value of coins. Arithmetically easy to do but I think the utility is very questionable because all you're really doing is documenting the loss in the purchasing power of the dollar, not the increased or decreased "value" of the coin. As we've all seen, the value of collectible coins does not seem to be firmly connected to commodity markets (I'll bet @GoldFinger1969 would have thoughts on this). So, using the inflation calculation to "adjust" the original purchase price of the coin is simply another way to reflect the loss in the value of the dollar but doesn't in any way reflect what the new, inflated value of a particular coin should be. Think about how little utility this calculation would have had with the value of US silver Commemoratives.

I keep detailed records of every coin and currency purchase (spreadsheet and receipts) over five dollars so that if I need to, I will have a basis value that is unassailable in an audit for me or my heirs. That could work for or against me depending upon market value at time of sale or audit.

I don't think we'll ever see capital gains tax indexing any more than I think we'll ever see the Fair Tax - but that's a topic for a different venue entirely.

 

I don't sell I hoard

 

But wouldn’t you be creating an alternate future timeline, than the one that was originally going to happen? Would not your routine and habits change if you knew that you were going to win Powerball in, say, 6 months, thus creating a whole different butterfly effect?

What if you decided to splurge on an MS-64 1916-D Winged Liberty (Mercury) Dime, knowing that you were going to win Powerball, but by simply making that purchase, for some reason things changed and you never wound up being able to buy that Powerball ticket, or the drawing wound up being 2 seconds later and different numbers came out?

(I won’t even start a conspiracy theory about them not allowing those numbers to come out for that drawing, because they knew someone had them, and they wanted the jackpot to go higher, lol)

 

I think you mean "domino effect", but how would anything that hasn't happened cause change to the detriment of anything else? ~ Chris

 

In my example, and I know we’ve detoured from the thread, sorry about that, the detriment would/could be to you. You (possibly) cashed out your life savings to buy the coin. Yes, you may get the same or more than you paid for it, but the stress may give you a heart attack, or you May take a hit on the cost of the coin. There may be other things that you could or would have done, as well, that affect other people, that also affect you.