Am I correct that each barter transaction where he traded up created a taxable short-term capital gain assuming he never held onto any asset for more than one year?
and...... if it can be shown that he is running a barter business, the gains show up on a Schedule C?
Sounds right to me.
No. It creates ORDINARY INCOME, which currently is taxed the same as a short-term capital gain, but is not the same thing. You will find at least one bartering example in the TRs under section 61.
If he is running a bartering business, he has to file 1099-B's also. [Yes to Schedule C.]
Why is it ordinary income when it is personal property that he is bartering? Isn't he effectively selling a capital asset? Bartering in itself should not change the character of a transaction.
I read the same article, and did immediately start thinking of the tax implications... hmm.
I don't see it as a trade or business or bartering personal goods, but I guess you'd have to go through the nine profit-motive factors and make a determination. Sounds more like a hobby to me.
If everything he bartered was tangible, personal property used for investment, some of the barters (where the properties are of the same general asset class) would be like-kind exchanges, using Form 8824. The unlike-kind exchanges would be taxed as capital gain income.
-Mark Bole
Because the Treasury Regulations say so.
The property is more akin to inventory than to an asset used to produce something else.
replace second "or" with "of", a typo.
-Mark Bole
I am unable to find any Treasury Regulation (TR) that treats the disposition of personal property (non-business transaction) as anything other than a capital gain/loss or nondeductible personal use loss.
If you are aware of a TR that makes a barter transaction of personal property (not a bartering business) ordinary income please provide a citation.
Start here: 1.61-2(d) - Compensation other than cash (goods for services).
1.61-6(c) Character of gain (dealings in property) - Capital treatment IF a capital asset.- How is what he did dealing with capital assets? He never put them in service to produce something else. (cf. IRC Section 1221(1) and
1231(b)(1)(A)&(B)). Inventory does NOT generate capital transactions. The purpose of each item he acquired is to trade it for another item he desires to acquire. That's INVENTORY. Dealings in inventory generate ordinary income (or losses).Barter (from Section 6045(c)(3) - Providing property or services in exchange for property or services (not otherwise excludible). [paraphrase from "Barter Exchange"] He may be exempt from the reporting requirements (if he had less than 100 trades per year - cf. TR 1.6045-1(e)(2)(ii)), but not from the definition of "bartering."
The IRS calls this self-employment income:
The fact that he did not put the product into service does not mean it is inventory. The law says that anything you own for personal use or pleasure or investment is a capital asset.
If you link to Tax Responsibilities of Bartering Participants,
All personal use assets are capital assets. The items in question are not inventory unless he was in a trade or business. So, when Alan asserted that the items were capital assets unless it could be shown that a trade or business was being conducted, he was correct.
The fact that he acquired the items along the way to trade them for items he wanted makes them inventory.
He is presumptively in a business as he has a taxable profit.... (Converse of section 183)
What is the code citation of this presumptive converse? Or Treasury pronouncement? Or court decision?
I have some stock that I acquired because I wanted to make money. Can I treat those shares as inventory when I sell them at a loss?
I believe that if you are a Day Trader, you can treat the shares essentially as inventory.
I'm not a day trader. I just want to use Stussy's rule to treat my stocks purchased as investments (which I plan to trade for money down the road) as inventory especially when I sell them for a loss.
Technically the issue should be, when you originally got it, were you intending to sell it at the first opportunity, or hold it until you thought it was the best time to sell. The same should apply to bartered goods.
You already blew it by saying that you bought them for investment purposes.
And how do you know the teenager's swaps were not a series of INVESTMENTS in capital assets?
You still haven't provided a citation that supports your "converse" assertion.
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