Fox Collectors

In my opinion, yes, there is a big difference between casual personal property appreciation and stock appreciation.

Thanks Bill.

Will

The only difference in personal property appreciation and stock appreciation is the IRS knows about the stock sale, they do not GENERALLY know about the personal property sale. Got a feeling they will be all over this one. and I believe the previous owner will be getting a 1099 from Julia's, and/or Julia's withheld 20% and sent it to Mr Obama already.


Now, depending on when the gun was past down and how (whether given or inherited) the cost basis of the gun if given is $50 (plus cost of a the new stock) or if inherited, the fair market value at time of death. The tax laws have changed (several times) over the last 50+ years, so it depends on what tax law was in place at the time. Example, if the seller had inherited the gun 2 yrs ago, the cost basis would be the fair market value at the time it was inherited, probably more than the actual selling price resulting in a net loss. You pay taxes on the gain (sell price less commissions and other costs associated with the sell, less your cost basis).

the tax man cometh.


Charlie

Charlie Sides wrote:The only difference in personal property appreciation and stock appreciation is the IRS knows about the stock sale, they do not GENERALLY know about the personal property sale. Got a feeling they will be all over this one. and I believe the previous owner will be getting a 1099 from Julia's, and/or Julia's withheld 20% and sent it to Mr Obama already.


Now, depending on when the gun was past down and how (whether given or inherited) the cost basis of the gun if given is $50 (plus cost of a the new stock) or if inherited, the fair market value at time of death. The tax laws have changed (several times) over the last 50+ years, so it depends on what tax law was in place at the time. Example, if the seller had inherited the gun 2 yrs ago, the cost basis would be the fair market value at the time it was inherited, probably more than the actual selling price resulting in a net loss. You pay taxes on the gain (sell price less commissions and other costs associated with the sell, less your cost basis).

the tax man cometh.


Charlie

If inherited then inheretance taxes would be due on the fair market value at the time of death minus certain limits correct?

Thanks Charlie. This what I needed to know.

Will

Will wrote:
"If inherited then inheretance taxes would be due on the fair market value at the time of death minus certain limits correct?"

No.
The fair market value at time of death is used to establish the tax payers COST BASIS. The cost basis is subtracted from the sales proceeds to determine the profit. You pay taxes on the profit. For an individual filing his Fed income tax, think of the sales proceeds as your income for the year and cost basis as a tax deduction. The higher the cost basis the better.

In the case where the gun was gifted to the next generation
cost basis is $50
Sales net proceeds $140,000 (after auction fees)
Profit $139.950
Taxes owed ~ $49,000

If the gun was inherited by the final seller - less say 1990
fair market value 1990 $130,000
Sales proceeds net of fees $140,000
Profit $10,000
taxes owed 3,500

I caution anyone who wants to use this information to do make personal tax decisions, you have to know what tax laws were in effect at the time of death. and as always, seek professional advice from your tax accountant - not some old gun nut.

Charlie

Do we really have to pay tax on a lawnmower that we bought at a yard sale for $20 and later sell for $100? Is the IRS really interested in sold personal property? I think this conversation goes way beyond what happens in real life. I am not in business to make money on guns. If I were, I would be claiming a loss every year. I would hope that when I sell my guns, IRS will keep their distance.

You have the right idea concerning personal property. The IRS would not know about your lawn mower sale and probably not be interested if they did know. A $175000 highly publicized shotgun sale is a different matter. If someone knows them well enough to call and ask, but I feel sure a 1099 to the seller is issued BEFORE the proceeds are distributed.

The bigger that gun collection, the more important it is to do some tax planning - before you sell, gift or, heaven forbid, die.
It may have already happened, and if not, it surely is coming ... the tax break to claim fair market value as a cost basis at time of death WILL GO AWAY. Part of the Change and Hope.

this is what you get for mentioning taxes on a shotgun message board.

This discussion is absolutely crazy. Do we have to keep track of every expense we incur in our gun collecting? I have thousands of dollars in every thousand dollar gun I will some day sell. Get serious. Anyone who really knows anything different, please post. However, the tax experts who have never sold a gun collection might consider playing "shutup". If anyone knows of a collector who has been snakebit by IRS, let us know.

Bill
People come here to get answers to their questions. Whether its the tax liability of selling a high dollar firearm, or safety of a twist Belgium klunker, we as a community need to give them our best collective answer. Brian, the original poster, asked about the tax and legal issues pertaining to the sale, and Fowlgunner Will was seeking clarification. They deserved better than your aw shucks don't worry about it answer.

I'm giving you factual information from the IRS tax code. All you have to do is google IRS and look under Publication 17, 2009 YOUR FEDERAL INCOME TAX and search collectibles or hobbies. Look under #14 Sale of Property, Capital Gains and Losses, Personal Use Property ... its all there. This is why they ALWAYS say seek the advice of a tax professional, which I am not by the way.

Your point that the vast majority of collectible sales is under the IRS radar is valid. But that don't make it legal.

your tax buddy

Charlie

Charlie, you of course are right. However, let's hear from someone who will give us some advice on how to balance out the proceeds from a gun collection with some expenses. Should we be keeping track, maybe making annual expense reports to IRS? I have not read any IRS document that would allow me to deduct gun collecting expenses from future profits on an annual basis.

My take on this is you can only deduct appropriate expenses if you are in a business, and the only folks "in the gun business" are those who have a regular dealer type FFL and who file a Schedule C or corporation tax reports for same. The ATF points out clearly that unlicensed individuals cannot buy and sell guns as a business, also that a C&R FFL does not allow you to engage in business. Therefore, unless you are actually in the gun business, there doesn't seem to be any way to deduct expenses over prior years, etc. If you sell a valuable historic gun and get a 1099 MISC or whatever for the proceeds, it would seem you are on the hook so to speak for taxes. Again, this is my opinion only and anyone in this situation should definitely seek counsel from a tax professional. I am not one. Silvers

Well, Frank Silvers is not a professional, although his points are well taken. Let's hear from someone who is a professional.

Thanks for the time and information fellows.

What I meant earlier is that unlike, 2010 with no "Inheritance Taxes", most of the time would the fair market value of the collectible bequeathed be added to the value of the estate and taxed at the time of inheritance? But the total would have to exceed some exemption level and only the amount in excess of the exemption would be so taxed, correct?

Thanks again,

Will

Yes Will, that is my understanding. I have been googling estate taxes to find the definitive answer, but I only see it given as examples. And it makes sense that if the cost basis is passed to the heirs at fair market value, that is the value used for inclusion in the estate.

As for maintaining expense records, this is what I have found. Under Publication 17Personal Use Property

"Property held for personal use only, rather than for investment, is a capital asset, and you must report a gain from its sale as a capital gain. However, you cannot deduct a loss from selling personal use property."

Example – you bought a shotgun for $8k and sold it for $10k two years later. You have a gain and have to pay tax on the gain. If you sold it for $7k, you have a loss of $1k but you cannot take a loss deduction for it, as stated above. IRS wins.

Internal Revenue Code 183 gets REAL deep into whether a hobby is a business, with the overriding factor being whether the activity is held for profit. Bunches of rules and assumptions on this one. Assume for this purpose, your gun collecting is a hobby.

Expense deductions – you report expense deductions in the year they occur. You cannot take expense deductions more than your income in that year. Income is Sales proceeds less cost basis (cost of goods sold). If you had expenses for each of the last 20yrs at $500 per year with no income, the deductions expire because expenses have to be deducted in the year they are incurred. No income, no deduction.

In Year 21. You sell your shotgun $10,000. You bought it for $8,000. your expenses THIS YEAR (gunshow table, travel to, etc) were $300. You gain is $1700. The $500 per year expenses over the last 20 yrs don’t matter - they expired in the year incurred.

One other point I was reminded of when reading up on this. Under the Bush Admin us wealthy guys were given a tax break on selling stocks and other capital assets. They were taxed at a lower rate than ordinary income - from 5% to 15% depending on income levels, etc. Collectibles were excluded from this tax break, and would be taxed at ordinary tax rates (28%).

I quit

Charlie

Charlie,

Thanks for your research and input.

I am aware of two situations in which sizeable collections of firearms were sold and the income reported to avoid a letter from Uncle IRS. I do not know all the details but I was told that very capable tax attorney's were hired to do the tax forms.

The cost of owning these collections over the years were included as expenses, ie; insurance, storage, etc. to help reduce the taxable amount.

And the federal and state (yep 'cause the fed's talk to the states) taxes were paid on the net profit.

I guess the IRS rational is/was they would like to get a chunk of your hide (profit), maybe not all of it but at least a share rather than the seller doing it discretely and not getting a nickel.

Yeah, and the profit on collectibles is federally taxed at 28% plus some for the state.

Your mileage may vary, and NO, I am not an attorney, just another slob taxpayer sharing my wealth with non taxpayers.

Jolly