Reporting sales of large $$ items

[dacubfan]

How many of us actually have documentation proof of what we paid for even some of the items in our collection? Therefore taxes will be due on the entire sale amount. I had planned to liquidate much of my collection while alive but am now rethinking that idea due to the tax implications. Instead upon my death my sons will receive a stepped up basis when they sell with little tax due unless they hold the items for another 20 years. Any thoughts on this approach? I've heard rumors of the stepped up basis being eliminated. Wouldn't doubt it.

[Angyale]

Where someone paid $100 for an item, the owner can only sell it for $500 due to market conditions at the time is sale but the “book value” is $1000 so the seller can claim a capital loss? You can’t have one scenario without the other. So if there is an unrealized capital gain, couldn’t there be an unrealized capital loss as well?

Angyale

[RL]

do not try to cheat the IRS. they will get you.

[conor912]

It makes more sense as an ownership tax than an unrealized capital gain tax….like taxes on real estate. You pay them every year even if you own the property outright. If it’s a gain-related tax, that would be a nightmare to track for everyone, including uncle sam.

[darkhorse9]

Originally Posted by conor912

It makes more sense as an ownership tax than an unrealized capital gain tax….like taxes on real estate. You pay them every year even if you own the property outright. If it’s a gain-related tax, that would be a nightmare to track for everyone, including uncle sam.

Property taxes go up (or down) depending on what they are paid for. Things like schools, roads, sanitation. etc. The property owner gets value in return.

ownership tax would just be a general fund collection with no return value to the owner. Same with the unrealized capital gains tax

[BobC]

Originally Posted by darkhorse9

Property taxes go up (or down) depending on what they are paid for. Things like schools, roads, sanitation. etc. The property owner gets value in return.

ownership tax would just be a general fund collection with no return value to the owner. Same with the unrealized capital gains tax

For federal purposes it would likely go into the general tax revenue fund, which supposedly benefits all of us.

[BobC]

Originally Posted by conor912

It makes more sense as an ownership tax than an unrealized capital gain tax….like taxes on real estate. You pay them every year even if you own the property outright. If it’s a gain-related tax, that would be a nightmare to track for everyone, including uncle sam.

Which is a big part of the reason they may likely not do it.

[philliesfan]

After reading all of this mumble jumble I don't understand.......I think I will just give everything away........UGH!
Bob

[BobC]

Originally Posted by Angyale

Where someone paid $100 for an item, the owner can only sell it for $500 due to market conditions at the time is sale but the “book value” is $1000 so the seller can claim a capital loss? You can’t have one scenario without the other. So if there is an unrealized capital gain, couldn’t there be an unrealized capital loss as well?

Angyale

That is another possible problem if the government were to pass a new "Mark to Market" tax law on some individual's and their investments/assets. Say you are subject to this tax law and buy something for $100 during the year. At the end of the year the item's value has jumped to $1,000, so you now have to report and pay the tax on your $900 gain. So you go to sell the asset to cover the tax due, but find out that since the prior year-end the value dropped down to $500, and you sell it for that. You still have to pay the tax on the prior year's $900 gain, but because of the sale, you've now created a $500 loss to report, but you have to wait to do that on next year's tax return. Ugh!

[BobC]

Originally Posted by dacubfan

How many of us actually have documentation proof of what we paid for even some of the items in our collection? Therefore taxes will be due on the entire sale amount. I had planned to liquidate much of my collection while alive but am now rethinking that idea due to the tax implications. Instead upon my death my sons will receive a stepped up basis when they sell with little tax due unless they hold the items for another 20 years. Any thoughts on this approach? I've heard rumors of the stepped up basis being eliminated. Wouldn't doubt it.

Just because you may have to estimate things like basis of your cards doesn't mean you can't. Believe it or not, IRS agents are also people and can be reasonable and work with you. They are not like they often get reflected as in movies and on TV.

However, the idea of waiting till someone passes away so they can leave their card collection to whomever they wish, at a Stepped-Up tax basis equal to the FMV of the collection at the time of their passing, is a perfectly good and viable way to save on income taxes when/if the collection is sold, at least as the law currently stands.

You are also correct that there has been talk and rumors of possibly doing away with this Basis Step-Up provision under the current federal estate tax laws, but nothing has been passed into law yet, I'm not so sure that will happen either. The government wants money now, right? Well, by inclusion of a card collection in someone's estate, the then FMV of the collection becomes subject to federal estate taxes. Now you've already got a large chunk of the population screaming about how federal estate taxes are an unfair money grab by our government, and are tantamount to unfair double-taxation on the value of property and assets that the deceased person worked hard for over their entire life, and bought/paid for with money that had already been taxed (hence the double-taxation factor). So once the FMV value of the deceased's card collection has been subjected to the federal estate tax, whether any federal estate tax ended up being due on it or not, they Step-Up the basis of the collection to the FMV used for the estate tax calculation so they now don't potentially subject the card collection to triple-taxation when whoever inherited the collection sells it for more than what was originally paid for it (tax basis) by the deceased. The one thing I hadn't mentioned yet is that everyone also gets a federal estate tax exemption, kind of like the standard deduction everyone gets that they can take each year on their income tax return. The federal estate tax exemption just got bumped up to $12.06M per person, beginning in 2022. That means that normally when someone passes away in 2022, the first $12.06M of their estate value has $0 federal estate tax on it.

Now remember my saying how the government is always looking for more tax money? Well if the person in my example passes away in 2022 and their total estate at the time, including the card collection, is worth less than $12.06M, they pay no estate tax on the value of the collection. And then, whether they Stepped-Up the tax basis of the card collection or not, if the person who inherited the collection decides to keep and not sell it, the government has no sale to tax and gets diddly-squat. The easiest thing for the government to do to possibly speed up their tax collections then is to simply reduce the federal estate tax exemption they give everybody. Remember when Hillary ran against Trump, she talked about dropping the exemption all the way back to just $1M per person. By lowering the federal estate tax exemption enough in my example, the card collection could end up becoming subject to the federal estate tax after all, and the decedent's estate ends up paying the estate tax owed on that collection's value right now. So by dropping the federal estate tax exemption, the the government gets it tax money now, without having to pass laws to stop the Basis Step-Up of inherited property and getting accused of now trying to triple-tax it, and they don't have to wait for the heir to sell it. So that is my best guess, currently, as to what the government may/will do.