A deceased family member gifted some physical gold to us: bars, coins, etc. We are unable to find any record of the purchase of these other than maybe credit card transactions but those would be difficult/impossible to source. When we sell them, what are our tax implications? These were bought when gold was still quite a bit lower than it is today.
1: Are we going to be subjected to capital gains tax? If so, at what rate and what amount will be taxed? We acquired them for basically no cost so are we going to be taxed on the gains from $0 (since we were gifted these) to the current sell price ($1723/ounce) or how does all of that work?
2: Since these were given to us before this family member died, are they considered a gift/inheritance and there's no inheritance/gift tax?
3: Even if there is no inheritance/gift tax, will these have to be reported as income?
I'm not a tax professional and there's a LOT of information to sort through on here so I appreciate any direction that one of you might provide. We are in Texas by the way.
1. Since they were gifts, your basis is the adjusted basis of the donor.
2. Gift tax is only due or reported by the personal that made the gift, not the person that received it.
3. You don't report gifts as income, only the capital gain when you sell an item for more than it was worth when you were gifted it.
[Edited 03/03/2021 | 12:11 PM PST]
Some clarification is probably called for here.
A deceased family member gifted some physical gold to us: bars, coins, etc.
A deceased person can't "gift" anything to anyone. There is a defined difference between a gift, and an inheritance, and that difference matters to the IRS for tax purposes.
If the items were left to you in a will, or if awarded to you in probate after their passing, then what you have is not a gift. It's an inheritance. It does not have to be reported on any tax return and you do not pay any federal taxes on it, if the value is less than $11.5M (I can't speak for state taxes, but for most states that tax personal income, the same holds true.)
The only value you need, is the fair market value of the item on the date the original owner passed. That will be your cost basis. You will need this cost basis only if you sell or otherwise dispose of the items in the future. The cost basis will never be taxed. But it will be used to determine if you have a taxable gain or loss in the future, in the tax year you sell or otherwise dispose of the items.
@kjs94gt wrote:A deceased family member gifted some physical gold to us
Can you clarify that statement? Did the family member give a Gift to you while he was alive, and now he died? Or did you inherit it after he died?
The family member gifted this gold to us while he was alive, but has now passed away. All of this occurred in the same tax year.
If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. PUB 551
When you sell it, you will have a capital gains tax. Net capital gains from selling collectibles (such as coins or art) are taxed at a maximum 28% rate. Collectible
If you know about when it was purchased, you may be able to look at historical gold prices.
@kjs94gt wrote:
The family member gifted this gold to us while he was alive, but has now passed away. All of this occurred in the same tax year.
@KrisD15 is incorrect and @ColeenD3 is correct.
If the items were gifted while the giver was alive, your cost basis is the giver's cost basis. The giver's cost basis is what they originally paid. (If the giver themselves received the property as a gift, or inheritance, it become more complicated, and there are a few other rare tweaks, but most of the time, the giver's basis is simply the price they paid.)
Your problem is that, if audited, the IRS does not have to give you credit for any basis you can't prove. We would probably be safe in assuming that the original price was at least $35 per ounce, since your relative could not have bought the gold before they were born. If you have some idea of at least what year your relative started buying gold, you might make a reasonable guess based on historical prices. Coins with mint dates can't have been bought before the date in question. You might have other clues. But, if audited, it will all come down to whether the individual auditor will give you credit for a reasonable guess or not.
Then, as stated above, you will owe capital gains tax on the difference between the selling price and the cost basis (whatever basis you can prove), and the capital gains rate for gold is higher than for other investments.
The one way you could avoid this problem is to "bury" the gold somewhere until you die. Your heirs would get a cost basis equal to the market value on the day they died, and their resulting capital gains tax would be much less than yours.
If you decide to spend the gold, you will need to come up with a reasonable estimate of the basis, and hope you aren't audited.
@Opus 17 I understand and appreciate your input. However, I don't want to "hope" I'm not audited. I want to do things right so if I am audited, I can be prepared to answer honestly and as accurately as possible. This is why I'm here asking questions. This is why tax is such a difficult situation because there are multiple different answers from people who believe they are correct. I'm not a tax professional so I just want to find the right answer.
Some gold has been bought over 20 years. Most had been bought in the last few years (2017-2020). I have no way of proving what he bought or when as we also don't have access anymore to old credit card receipts. I wish this was cut and dry but it appears it won't be.
@ColeenD3 Thanks for your answer as well. So, as you stated, "If you know about when it was purchased, you may be able to look at historical gold prices." I can't prove when any of it was bought originally. So how would I make an accurate assessment to appease the IRS and do my best to avoid any headaches? Am I just making a best effort attempt to be mostly correct? Is there any way to be completely correct? The donor officially handed the items over to us a few days before his passing. So, how do I handle this?
@kjs94gt wrote:
@Opus 17 I understand and appreciate your input. However, I don't want to "hope" I'm not audited. I want to do things right so if I am audited, I can be prepared to answer honestly and as accurately as possible. This is why I'm here asking questions. This is why tax is such a difficult situation because there are multiple different answers from people who believe they are correct. I'm not a tax professional so I just want to find the right answer.
Some gold has been bought over 20 years. Most had been bought in the last few years (2017-2020). I have no way of proving what he bought or when as we also don't have access anymore to old credit card receipts. I wish this was cut and dry but it appears it won't be.
If you sell the gold, the only thing you have is hope. Unless you decide to report the basis as zero and report the entire proceeds as taxable capital gains.
You can do as much research as you can to establish a reasonable cost basis, but if you can't prove it, then you are at risk in case of audit.
You will want to make an individual inventory.
A coin minted in 2010 could not have been purchased in 2009 or earlier. It's cost could only have been the price of gold after 1/1/2010. You might choose the price on 1/1/10, or the average price for the year, or the lowest price of gold since 1/1/2010,, which is the lowest possible price the gold could have been purchased for.
Then if you have a bar stamped 2017, do the same research. If you want the least risk of being challenged by the IRS, try to establish the lowest price it could have been purchased for.
But unless you want to pay tax on the entire sales price, or you are willing to bury the gold until your children inherit it, you are going to have to include some level of hope when you sell it.
@kjs94gt wrote:
@ColeenD3 Thanks for your answer as well. So, as you stated, "If you know about when it was purchased, you may be able to look at historical gold prices." I can't prove when any of it was bought originally. So how would I make an accurate assessment to appease the IRS and do my best to avoid any headaches? Am I just making a best effort attempt to be mostly correct? Is there any way to be completely correct? The donor officially handed the items over to us a few days before his passing. So, how do I handle this?
You aren't going to be completely correct unless you have receipts matched to the physical objects. For example, a coin bought in 2000 will have a lower basis than a coin bought in 2020. The taxable gain on each coin will be different. You need a specific inventory of each object with the value you have determined, and notes of how you determined the price.
A "fair" price might be the average price for the year the item was purchased. A conservative basis would be the lowest possible price for a specific item. For example, if you know your relative only started buying bars in 2017, then the lowest basis would be the lowest gold price between then and now. For dated items, the lowest possible basis would be the lowest gold price since the date.
However, the real lowest possible price is zero, and there is no guarantee the IRS will accept your valuations when you don't have specific receipts.
Make a detailed inventory, determine your best price for each specific coin or bar, and make notes of how you determined that price.
@Opus 17 wrote:Make a detailed inventory, determine your best price for each specific coin or bar, and make notes of how you determined that price.
That is a key point. Even if you are just estimating, the more organized and detailed you are, the more likely an IRS auditor would accept your estimate without any hassle.
Thanks for all of the responses. I really appreciate it. We are indeed going to be selling some of it to put toward secondary education for grandchildren of the donor. I think I have enough information to at least be pointed in the right direction. I am going to have to try to locate any receipts possible for any of the purchases. If I can't locate them, I'll have to put some work toward looking at any dates on the coins/bars to determine their average value during when these things could've been minted. If I am unable to determine what he paid, or what something's age is to determine it's average value, I'm going to just have to assume what it was worth and the approximate timeframe he bought them.
Final question: since I've never dealt with buying/selling gold bars, explain to me like I'm 5 years old:
When we do sell in the near future, how would the IRS even know what we've sold and why would I need to report it?
@kjs94gt wrote:
Final question: since I've never dealt with buying/selling gold bars, explain to me like I'm 5 years old:
When we do sell in the near future, how would the IRS even know what we've sold and why would I need to report it?
Because the income tax system is mostly run on the honor system. You expect your neighbors to be honest and pay what they owe, and in return, your neighbors expect you to be honest and pay what you owe. In most cases, a coin dealer will not be required to issue you a 1099 or other tax statement reporting the sale, so you are on your honor to report the taxes.
There is a banking requirement that banks report transactions over $10,000. This is automatic, but the information goes to the IRS and can trigger an audit, although no one quite knows how the selection system works. If you sell more than $10,000 worth of the gold and split the bank deposits up into several smaller deposits of less than $10,000 each, that is a separate crime called "Structuring" which is illegal even if the underlying transaction is perfectly legal. Penalties can include forfeiture of the structured deposits.
And of course there is the threat of audits and penalties. The penalties and interest for under-reporting your tax is about 1% per month, retroactive from when they catch you to the filing deadline when you should have paid the tax, plus an additional penalty of 25% or more if they allege the under-reporting of tax was deliberate fraud instead of an honest mistake.
The IRS method for selecting returns for audit is secret. But let's suppose two scenarios.
1. You don't report the sale at all, but you have a large cash deposit into your bank account. Someone might get curious.
2. You report the sale and a large amount of sales proceeds, say $50,000. (That's only 25 ounces today.). But you report that all the gold was bought in 2019 for the same price, so you don't actually owe any tax. That might be normal for a gold speculator, but if you have never shown any interest in such trading before, that might also get someone curious.
@Opus 17Makes sense when you explain it that way. I had no idea. Thanks for taking the time to type it all up.
Giving a monetary gift is easily documented by a check. However gifting the value of coins is not. How does one document the value of coins being gifted? Is a lawyer required with witnesses???
How do you establish the current cost basis in a gift of coins??? You can gift money by check, thereby establishing a basis. However, the value of coins upon gifting must be legally documented, or the value of the coins itemized somehow.
HOW do you document the "cost basis" of coins??
@Snoopy6-43 wrote:
How do you establish the current cost basis in a gift of coins??? You can gift money by check, thereby establishing a basis. However, the value of coins upon gifting must be legally documented, or the value of the coins itemized somehow.
The cost basis of a gift is NOT the market value upon gifting. The cost basis of a gift is whatever the giver's cost basis is. The giver's cost basis might be their purchase price, or it might be something else, depending on how and when the property was acquired. (For property that was previously used in a business, it is even more complicated.)
If the gift was more than $15,000 in value, then the giver was required to file a gift tax return. That establishes the cost basis. If no gift tax return was filed (because the gift was small enough that it did not require a gift tax return, or because the giver failed to file) then you have to rely on information from the giver to determine the basis.
It may be hard to document your cost basis in a gift, if the giver can't or won't provide it. The IRS does not view that as their problem. If you are audited and can't prove your cost basis, the IRS can determine the entire selling price is a capital gain.
The advice on the board should be checked out carefully. For one, "reportable" transactions aren't as described. Check:
https://fisherpreciousmetals.com/resources/general-market-info/truth-precious-metals-reporting/
for a well-written summary. I also wonder whether your desire to be bulletproof against an IRS audit may be leading you to overpay taxes. It may be that the gift you received was a Gift Causa Mortis - a deathbed gift - which implies a different tax treatment, as if the gold were inherited. The cost basis would then be relatively simple to compute, and much smaller than a usual gift.
I am not a lawyer or tax pro, but if the amount involved is substantial, hiring one or both may be worth it. Their professional rationale would then become the rationale for how you file your taxes, and if the professional is reputable the risk, even if there were to be an IRS audit, is very likely limited to any amount later determined to be underpaid.
I agree with the post that you should pay what is due, but as Judge Leaned Hand said:
"Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes."
Best of luck.
Ok. So when I hand my Grand kid a 1 oz gold coin, that I bought many years ago, Then I need to have a notarized letter to my grand kid indicating the date I gave it to him. That letter should establish his "adjusted basis" being the price of gold for that day??
No, you aren’t reading what is being written.
The cost basis of a gift is not the market value on the date of the gift. The cost basis of a gift is the cost basis of the giver.
That means that if you give your grandson a gold coin, the cost basis that your grandson must use on his tax return, whenever he sells the coin, is the price that you originally paid. Or, if you yourself inherited the coin, your cost basis is the market value on the date the previous owner died.
If you want to help your grandson (in this example) pay the least amount of capital gains possible, you would give your grandson a gift letter that gives the date that you purchased the coin and the amount that you paid.
Granted, most people probably fail to do this. You are commendable in trying to look ahead and help the recipients of your generosity pay the least amount of tax possible.
Depending on the sizes of the gifts that you intend to make, you may wish to speak to a financial planner. There are strategies that you could use to reduce the tax that your gift recipients would owe, if and when they sell your gifts. These strategies might not be as impressive looking as handing a gold coin to a young person. But you may want to at least educate yourself on your options.