Some thoughts on Selling Junk for Tax Losses and subsequent Wealth Preservation

jmski52

My situation my be different than some, but I think this phenomenon will affect more people as their pm profits pile up. I've followed (and continue to follow) the principle of "averaging in" with my pm purchases. From a financial management perspective, this is sound policy. It is a fact that buying in regular intervals consistantly serves to diversify your market risk, i.e., as the market fluctuates your risk is minimized. That's a fact that is taught in financial classes. There are other statistical risk factors, but this is a significant one.

If you are lucky enough or smart enough to see your pm holdings go up in dollar value, it's always a good thing - always. But here's the kicker - when you sell, the taxman always takes his 30% or 40% or 50% of your gains, whatever. And the sorry fact is that when inflation is taken into account, you are probably losing purchasing power after taxes, even if you've invested very well.

Here's what I've come to realize as this pm bull market has advanced over the past few years - Keep track of your losing positions. I almost welcome the opportunity to liquidate some of the coins that I've kept that may have lost value, because they can cushion the effect of selling my pms at a large profit. Some of my coins are no longer of any interest to me - stuff I've bought on a whim and are now simply cluttering up the place. But those items still have a value, and the value is more than the price realized when you sell them. Dead stock or dupes that you don't want and sell at a loss are worth their selling price PLUS the tax loss offset.

It's worth it to me to sell some yucky stuff for a loss if I need to sell some of my pms for some other reason in order to generate some cash that I might need at a given moment. Since I use pms as a store of value in the first place, I'm not "churning my account" by constantly buying & selling - this is strictly a wealth preservation move.

I just sold miscellaneous coin stuff that's been sitting for 20 years and for which I had no further interest. I also had sold a couple of gold coins earlier this year for nice gains, and the miscellaneous stuff will probably provide just enough loss to offset some of the tax bite on the sale of those gold coins.

The wealth preservation effect can still be applied when you keep adding to a pm position at different price levels. You build a position with various purchases - lots of guys in this forum use bars, I use coins. One day, you need some money, so you sell some pms. If you have a loss position in 5 oz. silver bars and a gain position in 1/10 oz. AGEs, you sell enough of each so that you realize the amount of cash you need and balance the amount of your loss with an equal amount from your gain. Now, you've got the cash you need for the time being and you have a net tax liability of zero for the transactions.

Of course, if all your past purchases are in the "plus column" then you are gonna be paying more taxes.

Anyhow, I just thought I'd throw this out there. You gotta do the record-keeping anyway, so structure your selling to minimize the tax impact.

roadrunner

Good points Jmski52. We all hope that we always buy low enough that we will always be in a profit position but obviously that doesn't happen in real life.

Oreville's actions of trading numismatic rare gold for generic gold was another way to postpone the tax man. And if he wanted to, he could reverse that trade 3 yrs from now and buy back his rare gold if it made sense to. This type of trade could be done back and forth for as long as you wanted. Buying into generic gold that qualifies as non-bullion is the key factor. You want the appreciation of gold but also having a "numismatic" coin. This is much harder to do with silver. Are circ silver dollars considered to be non-bullion? They might be since they command >15% to melt. And certainly BU Morgan dollars would qualify, at least for now. Of course the required paperwork for this is tedious and you basically have to self-report your positions to the IRS. You might as well leave them a key to your safe deposit box now if they decide to come looking for gold someday...lol. And with the $600 1099 deal coming down in 2012, which will basically make everyone self report any ways, maybe Oreville's Like kind exchange philosophy makes even more sense come 2012. There should be a lot of coins sold in 2011 in preparation for everyone getting fresh receipts/invoices for their coins and clearing off the books for coins bought/traded for years back. That alone could make 2011 a boom year for coins.

roadrunner

jmski52

roadrunner, I'm talking about selling stuff that I've bought over the years, and not necessarily a swap transaction based on changing premiums. I'm talking about stuff like: BU Lincoln Rolls, BU Nickel Rolls, BU Kennedy Rolls, Mint Sets, Proof Sets, Silver Proof Sets, Presidential Dollar Proof Sets, accumulations of SMS Sets, miscellaneous commems, medals, BU Rolls of Sacs, Presidential Dollars, State Quarters, etc....

All this stuff can be cashed out with no real concern over the P&L position, and if there's a loss on some items, it is easy enough to sell a little pm for an equal amount of gain, to produce tax liability = 0.

I'm not selling any of the "stuff" until I need to sell some pms to generate some cash, for whatever reason that might be. I could even sell off an old lawn tractor for a loss! (Well, maybe not that - but any losing investment item.)

1jester

I hope everyone is just as scrupulous in counting and calculating all your lost time ( = $$$$$ ) in maintaining all these records to not run afoul of these hideously onerous tax laws.

TWQG

What precious metals?

Baley

I'm talking about stuff like: BU Lincoln Rolls, BU Nickel Rolls, BU Kennedy Rolls, Mint Sets, Proof Sets, Silver Proof Sets, Presidential Dollar Proof Sets, accumulations of SMS Sets, miscellaneous commems, medals, BU Rolls of Sacs, Presidential Dollars, State Quarters, etc....

in other words, as your title says, "junk"

It can be assumed that you're not going to buy such material in the first place, next go around?

Yes, deducting losses to reduce net taxable gains takes some of the sting out of paying taxes on profits, but it's always better to avoid the losses in the first place.

Similarly, I've never understood wanting to pay interest on home loans in order to "get the deduction"... much better to not pay the interest in the first place, if possible.

mhammerman

"It can be assumed that you're not going to buy such material in the first place, next go around?"

Yep, lots of those discovery nickel rolls to get rid of, lots of mint sets to get rid of, nope, won't do it next time 'round. The silver proof sets might still win if spot goes hot and people keep wanting them but those Proof Marines are gonna have to work to get out of the ditch, nope, won't do it next time 'round...shame too because it's a nice looking coin.

I'm thinkin' that there's probably some non-rescusitateable stocks in the sock that might need to get dumped as a strategy for "preserving wealth" too. Take the hickey now on the junk and upgrade your asset stash for tomorrow with any proceeds. Don't forget to stash some frn's. It's gonna be different, next time 'round.

Yeah, next time 'round.

jmski52

It can be assumed that you're not going to buy such material in the first place, next go around?

Not at all. This stuff was fun to collect, and I don't plan on selling every last bit of it. These coins & sets are a pretty small fraction of my assets, but I can see an advantage in trading it away, especially since it's a no-lose proposition in my mind. Sometimes I buy a bunch of multiples - for various reasons - sometimes speculation, sometimes to pick out the very nicest ones. I do collect coins. It just happens that these might come in handy to sell alongside some pms, if & when I ever need to sell some pms.

Don't forget to stash some frn's.

A very good point! And a very important one!