Tax question

dan1ecu

This one’s a little off topic, but...

Has anyone ever used the capital losses from the stock market to offset capital gains from selling collectibles, or vice versa? Is that allowed?

Dan

KlectorKid

can u re-phrase that for the not-so-bright-people? on second thought dont bother i wont understand it anyways.

BAJJERFAN

Unless you do it as a business i.e. are a dealer or buy them thru an investment representative there are no tax consequences from the casual sale of coins.

dan1ecu

KlectorKid,

You’re probably too young to have to worry about capital gains taxes at this point, I think. But when buying and selling mutual funds, for instance, the gains that you receive from one sale (selling price - buying price) can be offset with losses from another sale. That way, you don’t have to pay tax on the gains from the first sale.

BAJJERFAN,

That is good to know in case I do any selling in the future.

Thanks,

Dan

BAJJERFAN

There has to be recordkeeping involved on the part of the buyer and seller and in most cases this would not be worth the mountain of paperwork for each party or the IRS.

roadrunner

As I understood it, the capital losses of each can offset the gains of each up to $3,000 in losses per year. As an investment, you can write off $3,000 in losses in coins per year until you finally cover your losses. So in effect if you had $3,000 in long term stock losses it would in effect be offset by $3,000 in long term coin capital gains. But you can't mix the two. The govt wants taxes on the profits when you sell your coins so you are entitled to take the losses ($3,000 per year max and the rest carried forward each year) too. You however can't include the business expenses if you are just a hobbyist.

Another legitimate way to defer taxes on coin capital gains is to make a like-kind-exchange for other desired numismatic items. For instance if you sold off a Morgan dollar collection for $10,000
(and had $2,000 in profit) you could exchange it by having the seller pay you in say 25 slabbed Saints
or $20 Libs in MS61-62-63. You would owe no tax until you went to sell some of the Saints. As I recall, a like-kind numismatic exchange must include similar items (e.g. coins) with at least a 15% premium to face value. Hence, pre-1964 silver coins, wheaties, common circ Morgans, would all qualify. You could also trade for one rare coin worth $10,000 too. But the advantage to this method is to preserve your capital in the safest means possible until you want to buy something again. If what you trade into goes down 20% over the next few months, you didn't accomplish anything. Sometimes the
safest route is just to take your proft, pay the taxes, and feel good that you made money.

roadrunner

presleyh

I know this is hard to believe but a lot of people dont tell the government that they buy and sell coins! If you want to keep immaculate records and be concerned with things like long term and short term capital gains, then you can offset any legitimate gain with a loss and vice versa. Even gambling winnings can be offset with losses.
there are annual limits and losses can be carried over for several years. But for most casual collectors, you probably wont have to worry about making a profit with coins.

BAJJERFAN

You can off set cap gains with cap losses of any kind; that is $20K in cap gains from stock can be offset with $10 K in cap losses from coins provided you can document the $10K in losses. So your taxable cap gains will be $10K. There is no limit to the amount of cap gains that you can claim, but you cannot claim a net cap loss of more than $3K in any one year; any more than that must be deferred to subsequent years.

dan1ecu

Thanks, presleyh, roadrunner, and BAJJERFAN –

I wonder why the auction houses aren’t required to report sales to the government. As BAJJERFAN said, it might be considered too much paperwork on the government’s part.

Dan

roadrunner

Baseball, yes, that does sound unfair not to be able to carry forward losses in excess of $3K. I'm not an expert on the code but was commenting on what I've "picked" up over the years. Seems that if you can rollover stock losses why should coins or other similar areas (antiques, art, diamonds, etc)
be excluded? Any accountants out there have the answers?

roadrunner

crito

my understanding is the same as BAJJERFAN's. except in my case, using stock losses to offset income from coin sales. net loss over 3K gets moved forward. to deduct related expenses would need to file itemized as a business.

crito

income is income. stock losses can be used to offset income. My accountant, who happens to be an ex-IRS agent, used stock losses to offset income from my IT consulting business. I don't see why this would be any different.

crito

well, I don't know exactly what constitutes "ordinary" (doesn't appear you do either,) but it's still income... and last time I looked at a tax form, it did have a spot for gambling gains/losses. I can call him and find out tho.

crito

besides, I'll likely file as a coin business this year anyway, not making any money with the IT consulting. I do know that the IRS allows gold coins to be put into IRAs, which would seem to mean they recognize them as a legitimate investment vehicle. In which case, you should be able to deduct your loss.

gemtone65

Holy Moly! I can't believe the amount of misinformation contained in this thread. Take a look at schedule D in the IRS tax forms. Therein, it appears to me that 1)all gains from collectibles must be reported, regardless of whether you are a dealer, investor, or collector, 2)such gains can be used to offset losses on stock sales, 3) coin losses do not appear deductible. If they are, I can't see how you would claim them on the tax form.

The real expert on this matter is Elcontador. I believe he is currently out of the country, but should return in a week or two. Perhaps someone could PM him so we get get his response.

jtryka

As I understand the code, coin gains and losses fall under collectibles, not capital gains, so they are treated the same as gambling or art. Gambling losses can only be used to offset gambling winnings (i.e. Uncle Sam is not going to give you a tax break for going to the craps table. But if you win, that is taxable income, that may be offset by losses during the same tax period. I had a secretary once that won $5000 on a slot machine in Atlantic City and she saved all her lottery stubs and other evidence of gambling losses to partially offset her winnings from the slot machine. I think coins are the same way, where you can offset gains with losses but cannot take a net loss. Capital gains from stock/securities transactions cannot be directly netted against such gains as they are taxed at different rates for Long-term vs. short term etc. To maximize tax revenues, capital losses must first be netted against other capital gains (hence eliminating income taxed at potentially lower rates) and only if there is a net overall capital loss may up to $3000 be netted against ordinary income, with the remainder carried over to future periods for up to 10 years. In my experience, most collectors do not recognize either gains or losses on their collecting activity for tax purposes, unless it was the result of a large sale or auction for which records are kept. Personally, my tax return would be insane if I had to file every coin I may have spent or traded or sold! Disclosure: I am not a prefessional tax accountant, so please consult your own tax advisor for information on your own tax situation.

crito

hobby loss rule: "You can deduct losses incurred in any activity you entered into for the purpose of making a profit." apparently, the intent is what matters and that can be somewhat subjective... but in short, if you bought them as an investment, you can deduct the loss. if you bought them for entertainment/pleasure purposes, likely not.

wallstreetman

When I got married New Years Eve of 94, my wife got a Royal Flush on a quarter machine and won $1649.00. My tax guy said "You gave it all back, Right". Ya, Whatever you say. I had no proof of giving it back! If the IRS could have came after me, its too late now.

crito

too bad you're not a professional gambler, you could of used your roulette losses to offset that gain.

jtryka

Well, you are right crito, and I looked it up, and there are nine factors the IRS looks at to determine if it is a profit-seeking activity:

1. Whether the activity is conducted in a businesslike manner.
2. The expertise of the taxpayer or their advisors
3. The time and effort expended
4. The expectation that the assets of the activity will appreciate in value
5. The previous success of the taxpayer in the conduct of similar activity
6. The history of income or losses in the activity
7. The relationship of profits earned to losses incurred
8. The financial status of the taxpayer (i.e. if the taxpayer does not have substantial amounts of other income, that may indicate this is an activity engaged for profit).
9. Elements of personal pleasure or recreation in the activity.

There is also a presumption that the activity is profit seeking if it generated a profit in at least 3 of any 5 consecutive years ending with the tax year in question. If it is shown to be a profit seeking activity, then it is really treated more like a business than capital gains, with a whole new set of tax rules.

This information primarily derived from West's Federal Taxation: Individual Income Taxes.

gemtone65

The original question related to capital gains, not to business related annual income. It's certainly true that if you can meet the IRS requirements for operating a coin business, then you can occasionally claim annual losses (see the 3 out of 5 year profit rule above). But, few of us actually operate a coin business, and we'd have to show our business profits on sales in the majority of years.

For most of us, the relevant issue is the treatment of capital gains, not business net profits. So far, I have not seen a coherent, consistent, or convincing explanation of what happens with losses on sales of coins held for investment, or profits on sales on coins held for hobby purposes. I'm reasonably sure that gains on sales of coins held for investment are subject to tax @ 28%, and that losses on sales of coins held for hobby purposes are not deductible.

jtryka

I think it depends on whether the coins in question are held for investment, or personal use. If they are held for investment and meet that criteria, then I would suggest they fall under the capital gains rules and must be netted with like capital gains and losses (i.e. short-term with short term, long-term with long-term). If they are personal use assets, then the losses are only deductible to the extent that they offset gains from the sale of personal use assets. This is to prevent people from taking huge losses when they sell or trade in their vehicles and the like. Like I said before, if you have questions on this, consult your tax advisor.

BAJJERFAN

If you purchase coins as an investment thru a Bona Fide broker/investment house then the transaction will be properly documented for IRS purposes. When you go to sell them thru the same broker the sale will also be documented and the proper forms sent to you and the IRS. The applicable cap gains or losses will be treated appropriately at tax time.
If you buy a coin in a casual sale from me (pretend that we are two attendees at a coin show) and later sell it on eBay I don't believe that you are required to pay cap gains tax if you sell at a profit or entitled to take a cap loss if you sell it at a loss.

dan1ecu

I’ve received junk mail from firms wanting to sell coins to me as an investment. They offer to hold the coins in their vault, and their staff sells the coins when instructed to. This is advertised as being an option for an IRA investment. I don’t know if such a firm would report sales to the IRS. Anyway, I’d want nothing to do with that kind of “investing.”

Dan

crito

if you buy gold, silver, or plat coins for your IRA, they have to hold it for you. there was a limit of $2,000 a year last time I checked tho. IRS has published info on this, but I'm not doing any more google searches for lazy people.

crito

the point is baseball, takes less time to get the information than to write your venomous tirades. I thought the hobby rule was pretty clear, it's directed towards individuals... you don't have to file as a business or have an IRA.

oreville

A lot in these threads needs to be corrected.

I happen to be a CPA specializing in income taxes.

Ther is much mixing up of the rules here.

Rule #1: Any sale of coins even if casual, is required to be reported as income on your tax return unless total GROSS income from all sources (including salaries, interest income, etc. ) is less than the threshold to require you to file income tax returns.

Usually most people have to file returns so we will assume that the amount of income from all sources require you to file.

Now, depending on whether you are a dealer, investor or hobbyist will determione WHERE the income is reported.

Generally, dealers report gross income from sale of coins on Schedule C with the cost of coins as a cost of goods sold.

Investors and collectors must report sale of coins on Schedule D with the cost of such coins also being reported on such schedule. Indeed less than 1 year holding period is short term and more than 1 year is long term subject to maximum rate of 28% for collectibles.

Yes, swapping of coins with no cash involved can defer the gain but such transactions must be reported on form (I forget the damned form number).

Investors can deduct capital losses from the sale of coins in full against other capital gains of coins and stocks and real estate, etc. and the excess capital losses up to $3000 can be offset against other earned, gambling, interest, dividend, rental, social secuirty, pension, etc income with the balance of unused capital losses to be carried forward to the following year for the same schedule D computation to start all over again.

Collectors must follow the same rules as investors and since every collector have to follow the investor rules for gains I see little reason for them to be a "collector" for losses.

Investors can deduct cost of periodicals, etc. but they are reported in misc. itemized deuctions which rarely can be utilized since there is a 2% of AGI threshold.

Collectors cannot deduct any expenses at all except the cost of slabbing the coin or other direct costs related to acquisition of the coin such as postage and slabbing fees etc. needed to acquired the coin that was sold.

Dealers may choose to be investors for some of their coins they own personally that is not for resale. They benefit from such investor treatment of such sales since such sales is exempt from self employment taxes (social security taxes) , if not a Corporation.

Investors/collectors may choose to be both an investor/collector for their long term holdings of their coins and a business for the part time business they maintain provide they meet the 9 point test provided earlier. Paperwork rules so less and less taxpayesr seem to want to get involved in a dual status and we accountants seem to be too expensive to many of the hobbyists and investors.

Personally, I have chosen to be an "investor" tax wise since the paperwork is simplified and fortunately I have not sold any coins in quite a few years.

The reason why there are no 1099B forms required for sale of coins is because the industry is unregulated. But my friends, I don't know how much longer that will be the case.

There is much more to explain but I had to keep this as brief as possible.

Just my professional opinion.

BAJJERFAN

So how many here are going to start reporting all the profits from their eBay sales as income on their tax returns?

gemtone65

Oreville: okay, we finally have a coherent, convincing and plausible response to the original question. For completeness, I assume you meant to say, but inadvertently omitted, the conclusion that hobbyists cannot claim losses from sales of coins.

Moreover, if losses can be claimed by investors against other capital gains, including stocks, or even against income up to $3000 with carry forwards for the remainder, then I assume the following must be true: in Part II of schedule D, you would report your coin transactions (long term) in ALL columns, that is, your gain or loss would be recorded in BOTH columns (f) and (g) in the same amount. And, for any short term transactions of coin sales, you would record them in Part 1. Is this accurate?

oreville

gemtone: Yes, a hobbyist cannot deduct losses from sales of coins they purchase strictly for pleasure which generally means very inexpensive coins.

However, a hobbyist can also have coins they purchase for investment and take capital lossses on them.

Yes, collectible gains and losses that are long term do go into columns f and g of part II and yes, they are the same amounts for the item being reported. Short term (under 1 year) sales go into part I.

oreville

BAJJERFAN: I envision the day when the IRS will force ebay and other internet companies to issue 1099B forms on all transactions exceeding $100. This will lead to a firestorm and the IRS will probably be forced to back down but not without agreeing to a compromise on all sales over $600 per item.

Just a prediction.