Tax question on selling something of value.

Factual Questions
1

I’ve been wanting to ask this question for awhile and never got around to it. What happens if I sell something, lets just make it a coin, that’s worth a lot of money, say $100,000. What, if any, kinds of taxes to I have to pay on it?

There are a couple of different ways I could have gotten this coin. First I could have found it on the ground or in change. So if the face value of the coin is a quarter, then I’ve just made $99,999.75 in profit. But if I bought the coin years before at $90,000 then I’ve only made $10,000.

What kinds of taxes would I have to pay. In the second example I would have to have kept a record of how much I bought it for, much like stock. But in the first example how would I prove that I didn’t pay $90,000 for it? How do you prove it either way? It’s not like a stock or a house that’s easy to prove.

2

You have to pay capital gains taxes on it and the rate. You have to determine your basis which is what you aquired it for and may be zero if someone gave it to you as a child.

Subtract basis from sale price to find the gain and your capital gains tax is 28% of that.

“The long-term capital gains rate on business or investment real estate (called “section 1250 property” on the tax forms) will be 25 percent up to the amount of depreciation on the property while you owned it. However, there are no losses counted in the 25 percent rate group and any loss from this group must be taken into account in computing net gain or loss in the 15 percent rate group. Also, the long-term capital gains rate on collectibles such as art, rugs, jewelry, precious metals or gemstones, stamps or coins, fine wines, or antiques is 28 percent.”

http://www.finance.cch.com/text/c60s10d459.asp

3

On the other hand, I believe that if you inherited the coin, you’d receive a cost basis stepped up to the date of death of the giver.

4

You are probably correct on that. Many inheritence issues are like that.

5

What if you sold the $100000 price coin to a friend for $1000? Do you get taxed on the $100000 or the $1000?

What if you swaped it with a friend for a $100000 value watch. Would there be any tax to pay then?

6

Probably $1000. BUT.

In this case, you’d pay the full amount of tax due. Bartering is taxable income.

7

Could you sell it to your friend for $1000, and later your friend sell you her watch for $1000? Wouldn’t that get arround the bartering rules, or more likely how is this sort of ‘cheating’ stopped by the tax people

8

So I would still like to know, how do you prove how much you paid for it. For instance, if I found the coin, sold it, then say, well I actually paid $90,000 for it, are they going to believe me, or do I have to prove it somehow?

Or for instance the guy who bought the painting and found a copy of the Declaration in it. Did he have to pay taxes on it if he were to sell it. What about if he kept it would that still be income?

9

Traditionally you keep your receipts for this exact purpose. I think that the only way you will be caught is if you are audited.