Question - IRS and Gains and basis

[chinaco]

This is associated with my other post.

I am POA for my parent.

I am selling some collectibles for her. Things collected over about 40 years.

I have been assuming that the sale of personal property like that would represent a capital gain. Is that true?

There will be a substantial gain because of the time. The problem is that they had few records for what they originally paid for the items.

How can I handle the basis? Any thoughts or experience in matters like this that you can share.

I was thinking of contacting the IRS for guidance. Can I safely assume a % of the sale amount was the original purchase price on average?

 

[kcowan]

Depending on how much these items are worth, you might just get an appraiser to give you two estimates: one for present value and one for 20 years ago. While the 20 years is arbitrary, going back any further will probably not get good estimates. With a representative sample of the expensive items, then you might use the percentage to apply to lesser items that are not worth appraising.

 

[trirod]

A couple of things you won't like (sorry).

First, if you have no evidence regarding an item's cost basis, the IRS could just say that the basis is zero and it's up to you to prove otherwise. In practice, if you come up with a reasonable figure, they will likely accept it (as long as their definition of "reasonable" jibes with yours).

Second, I wasn't sure if you were aware that the Federal capital gains rate on collectibles can be up to 28% - it's not limited to 15% like stocks and securities.

 

[grumpy]

... and the IRS will know about the sales how?

Grumpy

 

[samclem]

... and the IRS will know about the sales how?

Grumpy

" . . . and always let your conscience be your guide!"
- J. Cricket

 

[chinaco]

... and the IRS will know about the sales how?

Grumpy

They may not. But I am not going to do anything illegal. I have no reason to do so. Besides... She has some huge medical bills. Can't I use that to offset some of the gains?

If some of the stuff does not sell (auction) until after she dies... doesn't the basis step-up to the current value?

Thanks for the comments.

 

[73ss454]

I don't think taking cash is illegal.

I think the fed gov. does more illegal things in one day than you'll do in your entire life.

 

[chinaco]

I don't think taking cash is illegal.

I think the fed gov. does more illegal things in one day than you'll do in your entire life.

Aside from the philosophical/moral arguments... I want to be on the up and up from a legal risk perspective. What do I have to gain by breaking the law? It is not my money. My parents have always paid their taxes. I will follow suit. Even if they did not... I would still pay the toll. I do not want to get the gears of the machine turning and pointed at me or her.

 

[ERD50]

chinaco, I'm with you. I really try to do my taxes as correctly and completely as I can. They don't make it even moderately easy, do they?

I've said this before, and kind of received a collective 'shrug' from the forum - I think the very idea of making the taxpayer accountable for proving the details of a transaction decades in the past (in this case, not even your transaction) is unworkable. As you can gather from this thread, it is open to 'manipulation', even among people who probably wouldn't ordinarily steal. And, it's a burden to those who wish to comply with the spirit/letter of the law - even though we may disagree with it.

I say that if the IRS is going to insist on collecting capital gains taxes, they should insist on recording the purchase, so that cost basis is documented. File that list of cost basis each year, so that anyone can pick up last years 1040 and have what they need w/o trying to recreate history. If the IRS wants to challenge what I paid for something, let them do it within 3 years of me filing the transaction.

I'd rather see them just drop cap gains tax, but that's another story.

-ERD50