Accounting for Inflation

Here's the explanation on capital gains tax on collectibles which includes coins. Long term capital gains on collectibles held over one year is 28% which is paid on the difference between the basis and what you sell it for. The basis is basically what you bought it for including certain additional costs of acquisition. The government does not consider your hobby to be a productive activity that benefits the country hence the high long-term capital gains compared to other investments.

The basis cost cannot be indexed upward for inflation, back to one of the earlier points in this thread. So, let's buy a coin for $1000 and hold it for ten years where each year the inflation rate is 2%. If you could index, then the indexed basis would not be $1000 but rather 1000 x 1.02^10 or $1219. So, with indexing your basis cost rises and the capital gains that you owe 28% on is reduced from what it is under current law.

But think about this: Let's say you get your favorite auction house to promote your favorite 2017 ultra-mega Proof 71 coin from Burkina Faso showing an incuse view of the capital city of Ouagadougou for $1000 capital gain. Then you have to pay the auction house some percentage, maybe 5%, plus paying Uncle Sugar his 28% of your $1000 capital gains.

What if you didn't keep any records of your purchase price? Why then, the government gives you an opportunity to suggest a reasonable value which you of course high-ball and the government rejects and "suggests" a much lower one. After some back and forth during which you are paying off your tax attorney's Porsche the government wins anyway and oh, by the way, hands you some penalties and interest on top of all the previous indignities.

All in all, it's pretty financially discouraging to be a collector. Why do we do it? Must be the love of the coins.

See the link for more details on capital gains on collectibles.

https://www.investopedia.com/articl...ld at,commissions involved with that purchase.

 

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Thank you. It is unfortunate that today's education system no longer seems to teach Economics anymore, but what in our school district here is termed as Free Enterprise. And, unfortunately, very little about actual economics was taught in that class (two of my six had already gone through it). When we had economics, we learned about every modern economic system and everything that drives economies including employment, taxes, inflation/deflation, investments and bonds, saving/lending/spending, interventions, etc.

We received a pretty good wake-up call with regards to valuation of money, especially fiats. And there is a lot that can be said in utilizing some of these measurements in guiding when, what, and where we make some of our purchases.

Just to caution you, the Fed does not use the CPI. The CPI is the Consumer Price Index and has a basis in polling consumers on what they buy. The Fed utilizes the PCE (Personal Consumption Expenditures) which has its basis in polling business on what they are selling. In a way, I guess you can say it's likened to the difference between the Red Book and the Blue Book...but not quite.

Other differences between the two include the fact that the CPI does not consider indirect payments such as insurance paid out on your behalf. The CPI only considers what you personally spend out of pocket. The PCE, on the other hand, takes these payments into consideration. The PCE also calculates substitutions whereas the CPI only takes into consideration actual buying activity. This is important because both give weight to the different "items" they calculate.

So, if the price of tea goes up and people buy less tea, but the producers/sellers identify those same people now buying soda instead, the weight will change for the overall calculation for each of those items in the PCE measurement. This does not happen in the CPI measurement. This is a major oversimplification of the matter, but the premise is there.

Now, I'll stop here because you would likely get the idea. The Fed determines future inflation policy based upon current PCE measurements. Their decisions to either inflate or deflate the dollar will have a direct affect on the price of consumer items. This in turn has an affect on the CPI used to calculate inflation which is further used in adjusting policies from other government agencies (such as Social Security and Department of Health). However, these changes in inflation policy are not connected to the CPI. It is the commercial entities that move the Fed's inflation policies. These policies then go on to affect such things as consumer lending and savings.

However, as we all know, prices are not the same nationwide. Therefore, the CPI (what consumers are actually spending) is going to give a widely variant cost of living across the nation as well as different variant rates of inflation. However, the PCE would be less volatile by region because it polls the supply and not the consumption. At its core, the supply will have a less variant price.

So, if you want to consider using inflation in your overall valuation considerations with your collections, I would suggest using the core PCE as your basis.

 

No, paying Uncle Sugar his 28% of your $950 capital gains; what you pay to the auction house counts toward your cost of goods. So does your cost of shipping the coin.

 

Thanks for the correction to my arithmetic. I did say in the text of the post that expenses can be deducted from the amount of the capital gains but I didn't account for it in the calculation. Nevertheless, it doesn't change the point I was trying to make which is that financially the game is stacked against the coin collector by the government.

 

And the auction houses, and the dealers, and everyone else who wants a piece of each transaction.

I understand that you understand the math. I just get a little knee-jerky over issues like this, after a few arguments with people who were adding various tax rates rather than multiplying them to "prove" that taxes make it impossible to earn a profit. (You know the sort -- "I earn a dollar, Social Security takes 7.5% from me and 7.5% from my employer, Federal income tax takes 25%, state income tax takes 10%, sales tax takes 10%, and now I've got only 40 cents left to spend!")