Quote:
Originally Posted by thecatspajamas
Bill,
I'd be curious to hear your take on this as it relates to remaining inventory value/cost of goods sold, as most non-hobby professionals I've talked to don't seem to understand that the "value" of most purchased collections cannot be split evenly among its pieces, and sometimes value of a particular piece cannot be determined until it is sold, which may or may not happen in the same calendar year that the collection was purchased.
Or am I just making this unnecessarily complicated?
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Lance,
Yes it's unnecessarily complicated, but that's not your doing. Pin this one on our tax code.
It's true that you don't always know what you'll get for an item until it actually sells, but you know what you figured it at when you bought the group, so that's an acceptable valuation.
Hobby purchases are treated differently from business purchases.
Hobby:
How to handle a lot breakup depends on what you're doing with the lot. If you buy it with the intent of breaking it up and selling it all, there probably isn't much difference between assigning individual values and simply splitting the cost evenly among all the pieces. But if you're buying a lot for one or two items and selling off the rest, then it does make a difference.
Say you buy a lot of 12 T207s for $600. There's a Johnson (which you want to keep) and 11 commons. You sell off the commons for $40 each ($440), so in your mind you now have $160 in a nice WaJo. Can you show a tax loss of $10 each on the commons? Probably not a good idea, because that leaves you with a basis of only $50 in the WaJo. When it comes time (in a few years) to sell off your collection, the IRS would frown on that valuation, saying that you were improperly offsetting current income with long-term capital gains. (Not looking for a response here, but a board member recently faced a similar decision. He posted an extremely rare card that he bought in with a group of commons.)
Business:
If you're talking about inventory and cost of goods sold, that's a business. Then it doesn't matter how long you hold onto something before you sell it; inventory is an asset rather than an investment, so it's all profit taken now or later and all taxed the same. You do need to assign a value to your inventory, but as long as you're consistent in how you assign values it all comes out even in the end.
Leon's way of dividing price by # of pieces will work in a general sense, but if, say, you bought a 520 set of T206 for $26,000, it wouldn't make sense (or be supportable if it came to that) to value the Cobbs and the Schaefers all at $50 each.
Bill