Taxes from Profits Selling Coins - Appraising Your Coin Collection

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Copyright 2015 by Kevin Flynn, All Rights Reserved

An important distinction is whether you collect coins for a business or as a hobby. There are nine factors the IRS uses to determine which classification should be used, such as "Whether you carry on the activity in a business like manner.." The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years. There are different rules, tax rates, and deductibles applicable to each.

Coins Collected as a Business or Investment

If you make a profit from selling your coins or precious metals, it is considered a capital gain. This requires IRS Form 8949 (Sales and Other Dispositions of Capital Gains). It is irrelevant whether or not you received a 1099 (B). You are required to report the sales or exchange of a capital asset not reported on another schedule when you have a gain from the conversion of capital assets not held for business purposes. Schedule D is used to figure out the overall gain or loss from transactions reported on Form 8949.

Precious metals include gold, silver, coins, and stamps. If you own previous metals for more than one year it is considered a long-term capital gain and the gain is subject to the 28% tax rate. If you owned your previous metal for less than a year, the gain is subject to the ordinary income rate, the same as your wages would be subject to.

If you paid a transaction fee to purchase the coin, then this would be subtracted from the gain amount. Other expenses that may be deductible include grading fees, travel to coin shows, storage costs such as a safe to protect your coins to list a few. Deductions are listed in your Schedule D.

In scenario #1, if you purchased an ounce of gold coin at $400 in 2005 and sold the coin in 2011 for $1,900, then you would be liable for $1,500 in gain and taxed at 28%.

In scenario #2, If you simply collected coins in circulation, then the cost is the same as the face value of the coins. If you saved $100 is 90% silver coins from circulation and sold them for $2,000, then your gain is $1,900. The cost received as gifts is the same as the cost to the person who gave them to you.

One exception to paying taxes on precious metals sold is that the gain from rare coins sold can be offset by rare coins purchased in the Like-Kind Exchanges rules. Bullion sold by bullion purchased, silver for silver, gold for gold under the same rules. There are specific rules and time frames that apply. It is best to seek the advice of a tax attorney.

Coins Collected as a Hobby

If a hobby, losses from an activity may not be used to offset other income. Income from profits on coins sold must be reported on Line 21 of your 1040, (Other Income).

Deductions are much more limited when for coins are collected for a hobby are claimed as part of your Schedule A.

Taxes on Inherited Coins

The rules governing Federal estate taxes are well established. State taxes for inheritance are normally based upon the applicable laws of that state.

If coins are inherited through an estate, then the base/cost price is established by the value of the coins at the time the coins are inherited. This is a good reason to have the coins appraised at this time. Income tax is not paid until the coins are sold. If the value of a coin is $1,000 at the time it is inherited, and sold for $1,100, then the gain is only $100.

If considering whether to sell your coins and leave money to your heirs rather than your coins, there is an advantage if you leave your coins as part of your estate. If you paid $2,000 for your collection and sold it for $20,000, then you are liable for $18,000 in gain. If you leave your collection as part of your estate and it is appraised at $20,000 and sold by your heirs for $20,000, then your heirs are not responsible for paying taxes on any gains.

Finding Coins

In 2013, a couple in California stumbled across a tine can buried in their back yard. When unearthed it was found to contain gold coins. Several more cans were uncovered, all laden with mostly uncirculated gold coins. There were about 1,400 rare gold coins found, with the total value at about ten million dollars. Roughly have of this treasure trove will probably be claimed by Uncle Sam in federal and state taxes. According to the IRS, if you find lost or abandoned, it is taxable at the fair market value in the first year it is in your undisputed possession. It would most likely be subject at 39.6 percent, which is the highest federal tax rate. State taxes would also be applicable. Had they been discreet and not publicized their find, could they have sold or given away these coins without suspicion? The primary point here is that before you advertise or publicize what you own or are selling, you need to fully understand the ramifications.

It is important to understand what tax liability you will have when selling coins your inherited or were given. If not sure, consult a tax attorney. What was presented herein are only some of the rules, which may also be modified over time. It is important to read the applicable laws and codes.

Previous: Local Laws for Selling Coins and Precious Metals
Next: Coin Terminology
Copyright 2015 by Kevin Flynn, All Rights Reserved

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