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Question

Gifted Physical Gold and Tax Implications: Are there any?

Forum|Forum|5 years ago
February 27, 2021
4 replies
0 views

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.

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KrisD15

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]

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Snoopy6-431

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???

Carl11_2

Employee

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.

Snoopy6-431

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.

Opus 17

Employee

@Snoopy6-431 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.

AmeliesUncle

@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?

kjs94gtAuthor

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.

ColeenD3

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.

kjs94gtAuthor

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?

Opus 17

Employee

@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.