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Jackst68
Level 2

Hobby loss rule for multiple types of collectables

This year I sold my coin collection at a loss, which I plan to report on Schedule D. Since the hobby loss rule does not allow me to actually declare a loss, there will be no tax benefit. To what extent, if any, can I use gains by selling other similar (e.g. bullion coins or bars) or dissimilar (e.g. stamps or baseball cards) collectables to keep from totally wasting the loss? I'm talking strictly capital gains and losses here, not expenses related to acquiring or disposing of the collectables. Also, because of my inconsistent collecting habits, it would be difficult at best for me to argue that any of the collectibles are/were held for investment purposes. Thanks.

1 Best answer

Accepted Solutions
Vanessa A
Employee Tax Expert

Hobby loss rule for multiple types of collectables

No, capital losses from the sale of personal property cannot be used to offset capital gains from the sale of personal property.  Unfortunately, when you sell personal property at a loss, there is no benefit.

 

Capital losses from sales of investments can offset capital gains, but personal property is not treated the same when it comes to losses. 

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10 Replies
soultax09
Level 5

Hobby loss rule for multiple types of collectables

If they're held for personal purposes you can't deduct the loss and can't use the loss to offset capital gains....capital loss on personal use property is not deductible.

Jackst68
Level 2

Hobby loss rule for multiple types of collectables

That doesn't answer my question. Another way to look at it, which would be similar to my situation: If I have gains from selling collectables of one type, can I offset some or all of those gains by selling collectables of another type at a loss?

Vanessa A
Employee Tax Expert

Hobby loss rule for multiple types of collectables

No, capital losses from the sale of personal property cannot be used to offset capital gains from the sale of personal property.  Unfortunately, when you sell personal property at a loss, there is no benefit.

 

Capital losses from sales of investments can offset capital gains, but personal property is not treated the same when it comes to losses. 

View solution in original post

Jackst68
Level 2

Hobby loss rule for multiple types of collectables

To be honest, I'm having trouble understanding this. Consider, for example:

 

I have a collection of 100 coins which has a basis of say $1000. If I sell this collection as a set for $1200, I have a taxable gain of $200. If instead, I were to sell each coin individually and I lost $5 on each coin except for one, where I gained $695, I would have a taxable gain of $695 and no benefit from the $495 lost on the other 99 coins. It wouldn't even matter that the collectables were of the same type? I know there are a lot of things that don't make sense when dealing with tax matters, but this seems beyond extreme.

tagteam
Level 15

Hobby loss rule for multiple types of collectables


@Jackst68 wrote:

To be honest, I'm having trouble understanding this. Consider, for example:


Consider this:

 

If you paid $400,000 for your primary home and sold it for $350,000, you would have a loss of $50,000 which you could not deduct since it was real property held for your own personal use.

 

If, in the same tax year, you also sold a second home (perhaps a home that you used as strictly as a vacation home) that you paid $400,000 for and sold for $450,000, you would have a gain on the sale of $50,000 which would be a taxable (capital) gain.

 

You could not offset the gain on the sale of your second home with the loss on the sale of your primary residence. It might not seem fair, but that is the federal tax code (which, frankly, is way beyond extreme).

Jackst68
Level 2

Hobby loss rule for multiple types of collectables

Thank you to the three of you who replied to my question.

Anonymous
Not applicable

Hobby loss rule for multiple types of collectables

from IRS reg, 1.183-1

(d) Activity defined -

(1) Ascertainment of activity. In order to determine whether, and to what extent, section 183 and the regulations thereunder apply, the activity or activities of the taxpayer must be ascertained. For instance, where the taxpayer is engaged in several undertakings, each of these may be a separate activity, or several undertakings may constitute one activity. In ascertaining the activity or activities of the taxpayer, all the facts and circumstances of the case must be taken into account. Generally, the most significant facts and circumstances in making this determination are the degree of organizational and economic interrelationship of various undertakings, the business purpose which is (or might be) served by carrying on the various undertakings separately or together in a trade or business or in an investment setting, and the similarity of various undertakings. Generally, the Commissioner will accept the characterization by the taxpayer of several undertakings either as a single activity or as separate activities. The taxpayer's characterization will not be accepted, however, when it appears that his characterization is artificial and cannot be reasonably supported under the facts and circumstances of the case. If the taxpayer engages in two or more separate activities, deductions and income from each separate activity are not aggregated either in determining whether a particular activity is engaged in for profit or in applying section 183. Where land is purchased or held primarily with the intent to profit from increase in its value, and the taxpayer also engages in farming on such land, the farming and the holding of the land will ordinarily be considered a single activity only if the farming activity reduces the net cost of carrying the land for its appreciation in value. Thus, the farming and holding of the land will be considered a single activity only if the income derived from farming exceeds the deductions attributable to the farming activity which are not directly attributable to the holding of the land (that is, deductions other than those directly attributable to the holding of the land such as interest on a mortgage secured by the land, annual property taxes attributable to the land and improvements, and depreciation of improvements to the land).

 

also the reg subsection (b)(4)

(4) Rule for capital gains and losses -

(i) In general. For purposes of section 183 and the regulations thereunder, the gross income from any activity not engaged in for profit includes the total of all capital gains attributable to such activity determined without regard to the section 1202 deduction. Amounts attributable to an activity not engaged in for profit which would be allowable as a deduction under section 1202, without regard to section 183, shall be allowable as a deduction under section 183(b)(1) in accordance with the rules stated in this subparagraph.

(ii) Cases where deduction not allowed under section 183. No deduction is allowable under section 183(b)(1) with respect to capital gains attributable to an activity not engaged in for profit if:

(a) Without regard to section 183 and the regulations thereunder, there is no excess of net long-term capital gain over net short-term capital loss for the year, or

(b) There is no excess of net long-term capital gain attributable to the activity over net short-term capital loss attributable to the activity.

(iii) Allocation of deduction. If there is:

(a) An excess of net long-term capital gain over net short-term capital loss attributable to an activity not engaged in for profit, and

(b) Such an excess attributable to all activities, determined without regard to section 183 and the regulations thereunder, the deduction allowable under section 183(b)(1) attributable to capital gains with respect to each activity not engaged in for profit (with respect to which there is an excess of net long-term capital gain over net short-term capital loss for the year) shall be an amount equal to the deduction allowable under section 1202 for the taxable year (determined without regard to section 183) multiplied by a fraction the numerator of which is the excess of the net long-term capital gain attributable to the activity over the net short-term capital loss attributable to the activity and the denominator of which is an amount equal to the total excess of net long-term capital gain over net short-term capital loss for all activities with respect to which there is such excess. The amount of the total section 1202 deduction allowable for the year shall be reduced by the amount determined to be allocable to activities not engaged in for profit and accordingly allowed as a deduction under section 183(b)(1).

(iv) Example. The provisions of this subparagraph may be illustrated by the following example:

Example.
A, an individual who uses the cash receipts and disbursement method of accounting and the calendar year as the taxable year, has three activities not engaged in for profit. For his taxable year ending on December 31, 1973, A has a $200 net long-term capital gain from activity No. 1, a $100 net short-term capital loss from activity No. 2, and a $300 net long-term capital gain from activity No. 3. In addition, A has a $500 net long-term capital gain from another activity which he engages in for profit. A computes his deductions for capital gains for calendar year 1973 as follows:
Section 1202 deduction without regard to section 183 is determined as follows:

Net long-term capital gain from activity No. 1 $200
Net long-term capital gain from activity No. 3 300
Net long-term capital gain from activity engaged in for profit 500
Total net long-term capital gain from all activities 1,000
Less: Net short-term capital loss attributable to activity No. 2 100
Aggregate net long-term capital gain over net short-term capital loss from all activities 900
Section 1202 deduction determined without regard to section 183 (one-half of $900) $450

 

 

the example would seem to suggest that for not for profit activities  capital gain from one activity can be offset by capital loss from another - but not below zero 

 

the 1202 deduction as of today relates to partial exclusion of gain on small business stock.  it would not make sense to limit this exclusion because of a not-for-profit capital loss unless this loss could actually be used in computing net capital gains for income tax purposes.    this is my opinion and others may disagree. 

Jackst68
Level 2

Hobby loss rule for multiple types of collectables

Thanks HACKITOFF,

 

I will spend some time studying this. More importantly, I'll wait and see if there are additional replies from those more knowledgeable about this issue than myself.

Jackst68
Level 2

Hobby loss rule for multiple types of collectables

After studying this issue further:

 

As indicated by previous replies, my situation is not a matter of applying Section 183 (the hobby loss rule), but is a matter of whether the collectibles are/were held as investment property or as personal property. An example I ran across several times involving paintings was that if one displayed a painting, it would be considered personal property, but if the painting were stored away in anticipation of its increasing in value, it would be considered investment property. I'm not sure things are really so clear cut, as this might imply that one could not enjoy a collectible to any extent without it being considered personal property, or the case where what begins as purely a hobby turns into a provable investment activity.

 

I don't think that Section 183 applies to my situation because it primarily deals with 1) the deductibility of expenses associated with activities not engaged in for profit and 2) presumptions as to whether an activity is engaged in for profit. It does not actually address the taxability of the activities or the properties associated with them. As stated in my original post, I am not trying to deduct expenses or make basis adjustments. I am just trying to accurately determine capital gains and losses based on purchase prices and sale prices--and minimize adverse consequences, which I apparently cannot do.

tagteam
Level 15

Hobby loss rule for multiple types of collectables


@Jackst68 wrote:

An example I ran across several times involving paintings was that if one displayed a painting, it would be considered personal property, but if the painting were stored away in anticipation of its increasing in value, it would be considered investment property.


I agree with you without reservation and I will bet you came across the following site that contains the following sentence:

 

https://www.thetaxadviser.com/issues/2019/nov/taxation-collectibles.html

 

Whether the taxpayer was holding the collectible as an investment asset or as a personal asset depends on the taxpayer's intent for holding the asset.

 

In your original post, I noted the ostensible lack of intent to hold the property for investment purposes and, as a result, the items would default (for the lack of a better term) to personal-use property. 

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