Reply 300 of 993, by TrashPanda
Claris wrote on 2021-12-18, 01:23:feipoa wrote on 2021-12-18, 00:32:
I have recently spoken with a US and Canadian accountant (CPA/CGA/CA) concerning the eventual liquidation of computer items. I […]
I have recently spoken with a US and Canadian accountant (CPA/CGA/CA) concerning the eventual liquidation of computer items. I will relay what I was told for the case of Canadian persons and for the case of US persons.
In the USA, any appreciation in value for an item sold is reportable. Generally, the 0%, 15%, and 20% rates apply depending on your income threshold. However, if the item is considered a collectable, as determined by section 408(m), https://www.irs.gov/retirement-plans/investme … d-plan-accounts , then it would fall under the 28% capital gain rate. Upon reading section 408(m), there are certain classifications which easily fall under "collectable", and then there is another category, "Any other tangible personal property that the IRS determines is a "collectible". Looking for further explanation on this, it says anything the "Secretary" determines as collectible. 🤣. The accountant was hard pressed to say whether a vintage computer collection is "collectable". So I have no answer there. It is not like we are selling an Apple Lisa. However, with the current trend and inflation, it is hard to say that some of these items are not collectable. A Cyrix 5x86-133/4x for example, or a Voodoo 5 6000. There aren't many of those, they are in demand, and fetch top dollar.
Also, if you have no record of your cost basis, whether it be collectable, or not, then you are to report $0 as your cost basis on your IRS 1040-Schedule D.
Previous reading lead me to believe that yearly Paypal deposits greater than 10K greatly increase the probability of scrutiny from the IRS. They may ask where the funds came from, and if if you aren't reporting your computer items capital gains on your 1040 Schedule D, you might be in in hot water. Perhaps you can share your personal experience in this regard. In the past, I've only ever sold household items at a capital loss.
If not considered collectible, then in the US, you normally are allowed $40,400 in capital gains at a 0% rate. So if you are liquidating your "collection", then you best not sell securities in that year particular year, if they are have a gain which puts you over the 0% rate category, or 15% from 40K-435K. In Canada, we don't have anything like 0% rate on $40K worth of capital gains, even for Canadian elligible stocks. I can see why someone might want to retire in the US - living off of passive income - you get $40K free, plus another 12.5K free (e.g. REITs) if you are under your standard deduction. Wow, the USA truly is the land of plenty!
Selling computer parts isn't great for the US, unless you stay under 40K in capital gains (from all sources). But, if you have a non-citizen spouse who is not considered a US person for income tax purposes, you are allowed to gift up to $159,000 per year without triggering a gift-tax. Or you can gift up to 15K per year to your kids without the gift tax. So if you have 40K+ in capital gains for a particular year and have a non-US spouse, it may be beneficial for you to gift your collection to your non-resident spouse and have him/her sell the lot, assuming whatever country he/she is resident of has beneficial tax treatment for personal items. I suspect this would mostly be the case for US expats.
Now for the case of Canada, if you have acquired and sold these computer items for the purpose of resale or investment, then they are not considered "personal use property", nor "listed personal property" and you must report the cost basis and sale amounts on your T1 income tax return each year. As I have never bought anything with the intention of reselling it, my computer hobby parts would be considered "personal use property" or "listed personal property". The difference being that with "personal use property", you cannot claim a capital loss, but that doesn't matter here with the current prices. I didn't ask what other difference there was between these two definitions, but what the accountant said next shocked me. He said that for personal use property or listed personal property, they automatically have a $1000 CAD cost basis. As I do not envision any single part in my lot being worth more than $1000 CAD, I can sell each item individually without having to to hassle reporting them. But for items selling for more than $1000 CAD, they need to be reported. I was told that I could lump them all up as a one-liner on the tax return., while keeping detailed records if asked for it by the CRA.
The accountant also said to check attribution rules for gifting in Canada - which I think only applies to the case in which there is some appreciation above $1000 CAD. Also, as in the case of the US, in Canada legal partners/spouses can gift to each other indefinitely, subject to some special case attribution rules, e.g. https://www.taxtips.ca/personaltax/attributio … minor-child.htm For the case of gifting to a spouse, "Your spouse or common-law partner is considered to have bought the capital property for the same amount that you are considered to have sold it for." Therefore, each gifted item also has a cost basis of $1000 CAD and is considered personal use property or listed personal property.
I did mention the intention to donate all proceeds, but he seemed to think that finding a charity to accept the whole lot was the best approach. The charity would assess the value and this amount would be used as a charitable donation on the T1. I told him I didn't think there would be a local charity willing to accept the collection and properly assess the value. Thus, my previous plan to sell individually at open auction, and donate the proceeds, is the way to go. Not having to deal with tabulating each item individually greatly simplifies the approach.
If anyone has heard contrary to this information from a reputable source, please relay the information.
That is.....a lot of words. So uhh...what does this mean for the average ma 'n pa ebay retro parts seller?
IF you live in the US the IRS is gonna be your new best friend if you decide to liquidate your collection and even if you gift it the IRS is still going to want their cut, in Canada its different for items bought for resale where the canuk IRS will want their cut but if its a personal collection not bought for resale then a different set of rules apply.
Long and short of it, the US will always get their cut in Canada it changes depending on how the item is classified but they still want their cut.