DEAR HARRY: My grandfather, who died in 1973, left his stamp collection to my father, who gave it to me as a 50th birthday gift in 2005. Neither my father nor I ever added to it or sold from it. Last year, I took the collection (largely United States stamps) to a philatelists' convention and sold it for $17,300. The problem is the tax basis of the collection. I know that the value was about $20,000 when my father gave it to me because he had it appraised by a reputable stamp-and-coin dealer in New York. We have no way of knowing the value at the time my grandfather died. What do I do on my 1040?
Harry puts his stamp on a tax issue
WHAT HARRY SAYS: The rules for tax basis on a gift are tricky. The basis for a gain is the donor's basis. The basis for loss is the lower of donor's basis or fair market value at the date of the gift. (This prevents "giving away" a loss.) The basis of an inheritance is fair market value at the date of death. Since there is an apparent loss, you will need that figure. Perhaps an inheritance-tax return was prepared at your grandfather's death? Or maybe the dealer who gave the recent appraisal can estimate it. If it is less than $17,300, you have a gain ($17,300 minus that figure). If it is more than the $17,300, there is a loss (the higher figure minus the $17,300). It is also possible to have neither a taxable gain nor loss where the basis for gain produces a loss and the basis for loss produces a gain.
Email Harry Gross at harrygrossDN@gmail.com or write to him at the Daily News, 801 Market St., Philadelphia 19107.
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