Capital Gains/Losses on coins

It is tax season, so wanted to pose a couple of HYPOTHETICAL tax questions related to coins:

1. You buy a 2-roll set of quarters from the US Mint for $32.95 + $4.95 ($37.90) and spend them for face value ($20) by feeding a parking meter outside a local bar. Can you claim a $17.90 ($37.90-$20.00) capital loss?

2. You buy an American Silver Eagle at a coin show in 2008 for $20 cash and get no receipt. You sell it in 2012 on eBay and after fees make a profit of $10. How do you claim the $10 profit as a capital gain without the receipt from the original purchase?

3. Your mother buys you a coin product from the US Mint as a gift. It is something you do not want, and she is okay with you selling it. You post it on CoinTalk and a member offers you $5 more than the original issue price. You accept and the buyer uses Paypal gift to pay for it. How do you claim the $5 profit as a capital gain without the receipt from the original purpose and no real record of the transaction as a sale since Paypal gift was used?

So, put on your green visors and provide some quick tax advice. :smile TC

 

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No tax question is stupid. It's stupid to pay someone to do your taxes.

Hope this helps.

 

I think it's stupid that our tax laws are so complex that most people have to hire a professional or at least buy software to help them navigate all the rules.

As for the OP, I have no clue.

I did recently think of a way that less than honest bullion traders could possibly cheat the system:

Let's say you own a bunch of 2004 ASE's that you may or may not have receipts for. If you sell them today, you'll make a tidy profit and would be obligated to pay taxes on them. But, what if you trade them for 2012 ASE's, and then sell them? Can you claim the lowest possible price that you could have paid for ASE's in 2012 from your local coin store as your cost without a receipt? i.e. Let's say your coin store sells them at spot plus $4 and the lowest price silver was at in 2012 was around $26. So the lowest possible price you could have paid for them would have been $30 each. Much better than the $9 each that your basis could have been if you bought them in 2004.

 

Not an enrolled agent. This is not tax advice, just common sense.

1) No. You can claim it as a hobby loss.
2) Without a receipt proving the purchase price, your basis would be $0... or technically $1, since you're selling a $1 coin for $30.
3) Technically your basis would be the market value at the time of the gift, not the price the US Mint charged, so your "profit" might be significantly more than $5.

As for how to claim all that stuff on taxes... meh... not giving you tax advice.

 

I don't know. All I know is keep it simple, keep it cash and leave no paper trail.

 

I think just the opposite is true. There is no possible way, unless I become a CPA that I could keep up on tax law to effectively do my taxes correctly each year. Of course, many people don't have as many work related deductions as I have. Its worth it to pay someone to keep that all straight for me.
Guy

 

My guesses:

1. You held the quarters (a collectible) for personal use. Therefore you don't claim the loss. You should have held them for investment.

2. You don't need a receipt when you file your taxes.

3. No clue.

 

I hired a CPA and I am happy with result. That's it and move on.

 

I am a cpa, but no this is not formal advice.

1. Yes it could be construed as a loss to offset other gains. How do you prove the sale of the coins for face value though?

2. Yes you can file that way but without receipts you cannot prove it. They could assume if was all profit on audit.

3. NK is right, your basis is fmv on the date you received the gift. Issue price is irrelevant.

 

I’ve been retired for awhile, so when did they change all these rules?
1. You don’t have to prove face value. The IRS has to prove income above that.
2. Not likely, you can prove the value when you purchased it.
3. Basis of a gift is the donors basis (cost in this case), basis of an inheritance is FMV on date of death or ….

 

Dear IRS,

 

1. One could assume he sold for collector value, not a wasting of asset. This is well litigated.
2. Without receipt, no proof of basis. Estimating worth has been thrown out repeatedly. It MAY work, but not guaranteed. I would file it that way, just pointing out the risk.
3. Under the unified gift and estate rules, i was assuming basis of gift would gross up his basis with no taxable affect to donor.

 

Your basis in the quarters is the lesser of the fair market value or the purchase price. If you spent them as if they were worth face value, than that's all they were worth in the first place, $20. Therefore, your loss was $0, so no.

A receipt is merely a convenience to prove your basis (it's especially convenient should you ever be audited!) but it is not an absolute necessity. There are other ways to prove the FMV at the time of purchase should it be necessary. You can still claim $20 as your basis and $30 as your proceeds on your Schedule D. Alternatively you can just claim this as a business profit if you're actively in the business of buying and selling coins (research the rules as to whether your coin buying/selling activity constitutes a business rather than a hobby).

Your basis in a gift is whatever the donor's basis is, which assuming your mother bought it recently, would be the original purchase price quite likely. Even if your mom doesn't have a receipt the US Mint's catalog or website could be used as reasonable proof of the basis. See the answer to the second question above; a receipt is a convenience, not a necessity, to prove your basis. Keep in mind should you ever be audited failure to be able to prove your basis in some reasonable manner means the IRS will presume your basis to be $0, so keep some kind of records! If you don't have a receipt, find some sort of proof of your basis (a coin catalog would probably suffice in this case). Also see above for claiming the capital gain or business profit.

As a side note, coin collecting can be treated as a hobby rather than an investment, meaning gains could possibly be treated as ordinary hobby income rather than capital gains. Also, if you use your profits from selling coins to buy more similar coins, the gains could be potentially be offset as a like-kind exchange.

DISCLAIMER: While I do have a degree in accounting and have studied tax extensively and prepared many returns, this is for information only and DOES NOT constitute tax advice. These answers are correct to the best of my knowledge and belief but I assume NO RESPONSIBILITY for any loss, penalties, or interest assessed if they turn out to be partially or even completely incorrect. Contact an enrolled agent, CPA, lawyer, paid tax preparer, or the IRS if you have any questions about such things beyond the hypothetical.

 

1. If it were litigated, nothing is assumed, the IRS would have to prove you sold them for more than face value.
2. True, but if you push it, an alternative method of proving basis would most likely be accepted, if it’s reasonable. Better to have the receipts, but if you don’t, you don’t give up.
3. Assuming, like 99.9999% of us, the donor is within the $5,250,000 exclusion, the donor’s basis (cost in this case) will carryover to the donee and there is no tax due from either the donor or donee. Tax is paid by the donee, if the donee sells the gifted item.

 

No you made a like kind exchange 2012's for 2004's and so your basis in the 2012's would be the same as the basis you had in the 2004's, $9.

 

I agree with most of what you said, except:
1. FMV has nothing to do with the basis of the quarter rolls. His basis is his cost.
2. Last I checked, coins are taxed at the lower of your marginal rate or 28%, so no advantage to calling them a hobby. If it's a hobby losses cannot be taken, if it's an investment, capital losses can be taken.
3. If you receive the profits from coin sales, you cannot do a like kind exchange (LKE). To do an LKE you'd have to actually trade the coins or have an intermediary receive the profits and exchange them for you within a limited time.

 

Why wouldn't you declare its a gift falling within your tax free yearly limits to gross up your basis? Seems a waste not to.

Btw, this conversation is a fun example why our tax code is beyond repair.

 

Is this a new rule since I retired? You’ll have to give me a cite. The way it was: By giving less than your annual limits, you don’t eat into your lifetime exclusion ($5,250,000 in 2012). I’d have to look into it, but I would think the only way you would gross up the basis of a gift is if you’re over your lifetime exclusion, so had to pay tax on it. So, for 99.9999% of us there is no grossing up – the basis of a gift is the donor’s basis. Now, if you inherited the property, your basis is FMV, so if the estate is under $5,250,000, huge tax advantage to inheriting the property as opposed to receiving it as a gift.

BTW, if you haven’t noticed, the higher the lifetime exclusion or the lower the Estate Taxes, the more the wealthy benefit, even from the grave.

 

From what I recall, 3 was amended as a part of the Bush tax cuts which lumped all gift and estate taxes into one pool. If you chose to gift against your exemption, the gift would be treated as the basis which was claimed, which would logically be FMV at the time of gift. Anything in excess of FMV would be taxable to the giver, from what I recall. Again, this isn't tax advice, and shouldn't be construed in any form, as such.

 

I'm possibly just confused, but doesn't your answer to 3 contradict your answer to 1?

With exceptions made for extremely short mintage products, the Mint tends to charge a premium of $10-$50 above FMV of the product being sold. It says so on their website. The IRS could easily say that his mother's basis in the product is what the US Mint states as the greater of underlying value of the commodities or the face value of the coins.