Tax question
TopoftheHill
Posts: 200 ✭✭✭
I know that coins are subject to a 28% capital gains tax on the profit if realized. My question: What if one sells a group of coins one year and realizes a $10,000 loss and the sells a group of coins the next year and realizes a $10,000 gain?
I'm thinking that the IRS would quantify the loss as a "hobby" loss and disallow it, but would then want a tax on the gain next year. But I don't know. If one can carry the loss forward...how many years?
0
Comments
If your selling collectibles from your hobby it goes on schedule D. Profit and/or loss are both allowed up to limitations.
If there are capital losses then there is carryover (max per year, $3000) until used up to the following year(s) in which there are capital gains and there are limitations.
Consult a tax professional.
I was hoping someone could provide a link. I have searched and not found one.
In regard to the above post, it is my understanding (I can be wrong) that one cannot deduct HOBBY losses unless they are used to offset HOBBY gains. In other words, if one books a hobby loss in any given year, one cannot use that loss to offset W2 income or stock gains.
That's the best advice, IMO. I've been through this and I can tell you it is worth the money spent. Once you get the advise you only need pay for it once since you can use the knowledge moving forward.
jom
Some reading material as you look for a well qualified tax professional (enrolled agents is a plus.) Preferably an individual that has had experience in this part of the tax code.
https://www.irs.gov/newsroom/hobby-or-business-irs-offers-tips-to-decide
It's only good if EVERY tax professional can be relied upon to give the SAME advice. Like doctors, lawyers, postal clerks etc. they aren't all of equal ability and some are better than others.
The only one you should rely upon is the one signing your return verifying that it is accurate and correct.
I believe that after you do a little digging that you will find that understanding to be correct. Whether or not a net hobby loss will carry over to the next year I do not know. Have never seen the situation broached.
From the IRS link provided by Hemispherical:
Generally, taxpayers can only deduct hobby expenses up to the amount of hobby income. If hobby expenses are more than its income, taxpayers have a loss from the activity. However, a hobby loss can’t be deducted from other income.
Tax laws are fluid... as fluid as the lawmakers who make and change them. What maybe current now can changed at the whim of congress. (Purposely used little “c.”)
One of the key things about using a tax professional is that they are “supposed” to have their eyes and ears keyed to the grindstone, i.e, be up-to-date with current and pending legislation (and know the history of changes.)
Enjoy the read.
Going to go read about individual states “Use” tax.
This is very true.
The taxpayer is the one signing that the return is accurate and correct. The prepare is only signing that the return is correct based on information provided by taxpayer. It is still the responsibility of each taxpayer to be sure the return prepared for them is correct. This greatly limits the liability of preparer.
Under penalties of perjury, I declare that_ I_ have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct and accurately list all amounts and sources of income I received during the tax year.
Declaration of preparer is based on information of which preparer has any knowledge.
My Ebay Store
Yep. In effect both are, but the taxpayer is signing that the information is correct and the preparer is signing that the return is correct [he/she prepared it] and the preparer will go to bat for you in the event of questions or an audit.
Not one person on this or any other message board can give you tax advice.
The professionals ethically won't, and the rest know nothing reliable.
Unless under audit the preparer finds the information you provided is incomplete or outright false. Then the preparer will likely throw you under the bus.
My Ebay Store
Consult your tax advisor...that being said (since you've been looking) a few reference materials for you:
Free direction which comes with the caveat of the first line of my post...consult your own tax advisor.
Key point I'd want to say is that 28% is a MAXIMUM capital gains rate on collectibles, it is not always the applicable rate. Depending on what other income you have, the holding period of the collectible, and other gains or losses (from collectibles and other sources). The gain could be taxed at anywhere from 0% to the top rate of 37%. The loss realized in the first year could be carried over to offset any gain in the following year, but only the portion that wasn't already used to offset other capital gains (or up to the $3,000 annual loss limit) in the year of the loss.
IMHO, the hobby loss rules would only come into play if you were actively buying/selling coins as a "side hustle" trade/business and generated a loss. If it was just a "one off" casual loss on the sale of a coin you were holding as an investment which resulted in a loss that would be a Schedule D transaction for which the loss would be treated as either a short or long-term capital transaction.
Apologies to @RogerB but as a CPA I'd rather give some qualified general direction than to let anyone rely on the inaccurate specific direction of non-professionals.
Last point...Consult your own tax advisor.
The rules are vague, interpretation of the rules is even more vague.
Some examples I've found include.....
You buy $10,000 worth of bullion related gold coins in anticipation of a increase in the price of gold. Those coins are considered a investment and a capital asset. You sell two years later at a gain it goes on a schedule D as a regular long term investment sale and the gain is subject to normal capital tax gain rules (0 to 20% based on income). If you sell the coins at a loss it is also considered a regular long term investment sale and the loss is subject to normal capital tax gain rules allowing you to write off the loss against current or future gains.
You buy $10,000 worth of Dahlonega $5 liberty gold coins in anticipation of increased demand and hopefully a increase in price. Those coins would be considered a collectible and a capital asset. Sell in the future and the 28% tax would apply to any gain regardless of income, Any loss would be deductible as any other capital loss.
You buy either of the above for resale and you are a dealer the coins are considered business inventory and part of your cost of goods sold. Any profit or loss after including all your other business expenses is treated like ordinary income and adds to or offsets any other income and "regular" tax rates apply.
At what point does coin collecting become a hobby? Do you buy one or two proof sets from the mint every year? Those are probably hobby purchases. Do you buy a hundred sets every year, that is probably a capital asset investment and sale at a loss would be deductible.
I found a really crazy example from a so called expert referring to art. You by a Van Gogh and keep it in storage. A future sale would be taxed as a investment sale. Hang that Van Gogh on the wall in your home for your pleasure and a future sale would be treated as a collectible sale.
The examples and/or opinions above are not intended to be legal or tax advice. If you don't feel comfortable defending decisions you make consult a professional you trust before making those decisions.
it's crackers to slip a rozzer the dropsy in snide
When shopping for a tax professional for your coin profits/losses it is wise to do this lookup:
Disciplined Practitioners
https://www.irs.gov/tax-professionals/disciplined-practitioners
One thing is for sure with the IRS (or the CRA in Canada).
In their eyes, "you're guilty, until proven innocent", so keep all your records and receipts.
"“Those who sacrifice liberty for security/safety deserve neither.“(Benjamin Franklin)
"I only golf on days that end in 'Y'" (DE59)
Well yeah, duh!
I know it sounds like an obvious statement but you’d be surprised at how many people would think the opposite.
For several years now the IRS has not been allowed to require testing of tax professionals or require continuing education for tax preparers. So there are hundreds if not thousands of people in this country who prepare and sign returns who have very little oversight.
Bottom line as a customer you need to do your due diligence.
My Ebay Store
Absolutely correct. It depends on whether it is a collectable, and investment, or you buy/sell as a buisness. If you display the coins, it is definitely considered a collectable. If you don't.............
Best, SH
Has a lot in common with AT/NT.
A tax prepper would likely be more than a little miffed if they thought that you were using them to cheat. Then again they will want to see the forms and paperwork to back up what you tell them.
This post confusion centers around the term "hobby". Re-read ModCrewman's points above and tommy44's examples found.
The IRS uses the term hobby for the pseudo self employed, i.e. those who claim business expenses in their reselling efforts but no (insufficient) business profits on their F1040 Sch. C Self Employment income (IRS rule of thumb is 3 profitable years out of every 5). Those claiming to be "in business" need to pursue profit in order to deduct expenses or the IRS can declare the taxpayer's endeavor "a hobby". Tax treatment for those not "reselling" (non-professionals) has nothing to do with equating / labeling coin collecting as a "hobby". So, if you are NOT a wannabe dealer pursuing profit (not investment / capital gains), "hobby" does not apply to you as an individual US taxpayer.
Now, for the OP's specific questions...
...What if one sells a group of coins one year and realizes a $10,000 loss and the sells a group of coins the next year and realizes a $10,000 gain?
ANS. > On F1040 Sch. D Capital Gains and Losses, each tax year is treated separately, Yr1 has $10K of coin losses, Yr2 has $10K of coin gains. Each year's capital gains and losses offset other Capital Gains, Cap. Losses and cap. loss Carryforwards for that Tax Year. On F1040, capital losses are allowed up to $3K in excess of capital gains to offset OTHER (i.e. ordinary, passive) taxable income.
I'm thinking that the IRS would quantify the loss as a "hobby" loss and disallow it, but would then want a tax on the gain next year. But I don't know. If one can carry the loss forward...how many years?
ANS. >
a.) Hobby loss not applicable to Sch. D as I stated above, yours is a "capital loss" (assuming you are NOT a wannabe dealer), and
b.) Capital losses are carried forward until all is used to offset future capital gains, $3K taxable income/yr, or death of taxpayer.
What’s your EA#?
When seeking tax advice, I'd rank the usefulness of it this way.
I couldn’t agree and LOL at the same time, so Agree it is. LOL!
Isn't #10 subsumed in #5?
Nope. You can look random strangers in the eye and judge their character a bit more easily.
Thanks for your very specific answer to my original post. But...is there Anyone....anyone...here who is not a dealer who realized a loss on coins and successfully claimed that as a loss on their return to offset other income?
Stop considering your coin investments as a hobby. Forget the word "hobby" and treat your coins like all of your other investments subject to the reporting requirements of Schedule D.
Investment losses are investment losses. If you lost money on art investments, would you consider the art pieces a hobby when filling out your Schedule D? Of course not.
No Way Out: Stimulus and Money Printing Are the Only Path Left
Agree with @derryb - if you're gaining or losing 10k in a year, it ain't a "hobby". Consult with a pro.