Capital Gains/Losses on coins

http://www.irs.gov/publications/p551/ar02.html#en_US_2010_publink1000257001

As I originally said, the basis is the FMV at time of the gift. I forgot to add that any gift taxes paid would also be included into the basis. In either case, it's FMV, not the value paid.

 

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I'd have to look into that, but I'm retired so, I won't, lol. Either way this wouldn't probably apply, since 99.9999% also don't gift above the annual allowed amount. What was the allowed amount in 2012, $13,000?

 

I don't think so, 1 & 3 are different scenarios.

I believe the premium you are referring to, that the mint charges, is for a donation to the benefiting organization. If the organization is a 501(c)(3), why not take that portion of the price as a chartable contribution? Never have tried that. I think you're pretty safe taking the full cost as your basis.

 

You are partially correct, I did leave that out above, I've never dealt with that scenario, good research - if you're computing a loss and FMV was less than cost at the time of the gift, you use FMV as your basis. But refer to the link above; there is a scenario where you have neither a gain nor a loss. Otherwise, in the OP's scenario in #3, FMV was the same as the cost when his mother bought it and gave it to him. Later he realized a gain, so he would use cost as his basis.

 

Well, I did do a little research and I'm not finding anything that says you increase the basis of a gift for eating into your lifetime exemption or giving more than your annual exclusion, other than for gift taxes paid for going over your lifetime exemption. If anyone has a cite to the IRC or an IRS publication, please post it here.

 

I disagree with the assessment as you presented it.

Let's take this scenario to the extreme:

Mother paid $49,995 for the coins from the US Mint. OP would much rather have $50,000 in cash than modern crap, so OP decides to sell the coins for $50,000 on CT.

Assuming 2012 ($13,000) or 2013 ($14,000) exemptions change the scenario, so I'll assume 2013.

$14,000 exemption means net gift tax exposure of $36,000, with $5 of that being due to an apparent increase in FMV, since the IRS would define FMV as the reasonable price that could be expected when the item is sold. Since the item was sold, in fact for a $5 profit, FMV would be $5 over basis. Assuming the maximum gift tax of 40% is somehow applicable, the total gift tax due to the IRS would be $14,400. Given that only $5 of the $36,000 was due to appreciation, we would see the OP's basis increase by $14,200, yielding a total basis of $64,195. That would mean a loss, and no taxes would be due on the $5 profit, but a LOT of paperwork, would be needed to establish that savings.

A big part of the question is related to timing of everything.

I don't think it's fair to use the mint.gov pricing as proof of basis, since the US Mint regularly changes its prices during the release year and the year following. (This isn't directed in response to the quote, but rather to another post in this thread.) As such, in absence of receipts, the IRS would apply the FMV rule based upon the assumption that the mother bought the coins at whatever would yield the lowest possible adjusted basis. Then, if the mother claimed the gift at current FMV, she'd have access to her annual exemption for gifting.

All in all, if the OP *really* wanted to, he could always claim the product was gifted to him at the moment of materialization of the sale. In that fashion, the basis would be FMV at the time of the gift, assuming the mother is willing to claim that she gave the gift at a value above her original basis and apply her annual exemption.

THIS IS ALL HYPOTHETICAL. I'M IN NO WAY, SHAPE OR FORM PROVIDING LEGAL, FINANCIAL OR TAX ADVICE.

 

I appreciate all responses to this thread. These were only hypothetical situations. However, as you can see, even people with vast financial/accounting experience do not always agree on what to do. My approach is to always document everything and when any doubt arises take a conservative path and err on the side of paying into the system. If you ever call the IRS and actually have the stamina to stay on hold for a very long time in order to speak to a real person, they are not always clear in their responses either. It is fine to strive towards tax avoidance but not tax evasion. They are monitoring eBay/Paypal transactions more than ever. TC

 

I'm gonna raise goats. It's easier to figure out.........

 

Although I am disagreeing a touch with SQG, any and all of this conversation is better than you will ever receive from a tax agency. Most tax agencies I have ever dealt with give such horribly conservative advice, and their department's OPINION on tax law they tell you like its fact, that I find even asking them a question to be a worthless exercise. I have had taxing authorities tell me to do something, only to find out later it has been ruled Unconstitutional in their own state. I pressed their counsel about this, and she said they were not agreeing with the judge, but did not appeal the decision, but am still telling taxpayers to do something their own court said was illegal. Its crazy man, I tell you.

 

I don't see how you can disagree with my assesment of the OP's #3 question - give me more detail.

Gift taxes would not be due in this case simply because the donor gave more than the annual limit of $13,0000 or $14,000, unless the cumulative lifetime total of the donor’s gifts exceeding the annual limits, exceeded the lifetime exclusion of $5,250,000. Until the lifetime exclusion is reached, the amounts by which the gifts exceed the annual limits would simply reduce the lifetime exclusion. Since 99% of us have estates worth less than $5,250,000, we’ll never have to pay gift or estate taxes, regardless of how much we give away per year. Although, if you give away more than the annual exclusion, you will be required to file a gift tax return, so that the IRS knows how much of your $5,250.000 lifetime exclusion was used.

The fact that the mint changes the prices throughout the year could mean the FMV has changed, yet does not affect the cost basis – the cost basis is what one paid for the coin (with shipping). If the mint lowers the price after the donor purchases the coin and before the gift is made, then that FMV might be used as the basis.

If the OP claimed the gift was given at the time of the sale, the basis would not be FMV, unless the FMV was lower than the donor’s cost. Using FMV as basis is designed to prevent taxpayers from passing “built in losses” to another, not to allow taxpayers to pay less tax on gains.

I don't know why many of you believe you can use FMV for the basis if FMV is higher than cost, the IRS Publication you cited states you use FMV for basis only when FMV is lower than cost. If you have a cite that says otherwise, please post it here.

 

I used the example given in the publication of how FMV is stepped up at the time of gift when gift taxes are paid by the gifting party.

 

Better look at that example again - it only applies when FMV is more than the donor's basis and it increases (steps up) the donor's basis (not FMV) by a portion of the gift tax paid. The step up of the donor's basis is limited to FMV, thus if FMV were lower than the donor's basis, there would be no step up and if FMV is lower than the donor's basis, the basis to the donee would be FMV (but only when FMV is lower than the donor's basis).

 

Does anyone actually worry about any of this when it comes to coins? When it comes to the IRS and it's ever-changing interpretation of tax code and law, the only coins I have is pocket change.
Guy

 

I do, because I like to sleep at night. The golden rule: don't mess with the IRS. And, if that doesn't sway you, remember there's often a paper trail that will come back to bite you.

 

I don't have any coin related gains, so it's not an issue. But seriously, the IRS would blunder an audit on itself, much less sleuth out an invisible paper trail linking coin sales. I'm honest on my taxes, hence the reason I prefer to pay a CPA to do them for me. But in reality, I imagine less than 1% of collectors report gains for the simple fact that it more work than its worth. Not saying its right, just saying it happens more often than not.
Guy

 

Most coins sales probably aren't worth an audit, but many are and the IRS knows it's an abused area. You wouldn't believe how many I've seen lose everything because the IRS finally caught up with them. Just saying, best to do it right.

 

The government has already said you can't claim the surcharge that goes to the organization as a charitable contribution.

 

Interesting, I haven't ever tried to or researched this. Do you have a cite?

 

I have read that too. Its considered the collectible value, therfor not deductible.

Regarding the basis of a gift SQG, to not gross up the basis defeats the purpose of the unified gift and estate tax. Let's say you can give 15k tax free. This can be cash, stocks, coins, whatever. If you are right and you have to take the donors basis, are you saying 15k basis worth of coins, or 15k fmv? If 15k fmv, but you get a lower basis, that gift is not as efficient as cash. That was not the intent of that law.

Basis inheritance was very much an aspect of previous gift laws, but not the unified gift and estate tax laws today.

 

Well, the way I and IRS Pub 551 describe it, is the way it is, absent a cite to the contrary. The law does treat inheritances more favorably than gifts. Gifts, in general receive the donor's basis, inherited property, in general receive an FMV basis. If you have a cite that says different, please post it.