client won and immediately sold boat at loss

[schirallicpa]

can i take the loss on schedule D??

[Lee B]

If it's not business or investment property, how would you take a loss ?

[schirallicpa]

hmmm.....gambling on a boat doesn't cut the mustard for investing???????

[rfassett]

No deductible loss.  It is a personal asset.  But now as I sit here and think about it, how did he sell it at a loss?  What was his investment in the boat?  I would believe that he may have sold the boat for less than what the organization raffling (if that was the case) valued the boat.  But unless he spent enough on tickets to exceed what he received for the boat, he did not even have an economic loss.

[schirallicpa]

well - received a 1099 from Seneca Gambling.  Apparently, your name was entered each time you played certain games at the casino.  1099 was for 20K.  The marina that provided the boat , bought it back for 16K a few months later, because client did not want boat.  So client gets stuck paying tax on 20, even though in the end they only got 16K.  But - still - they got 16K more than I did............... 

[Lynn EA USTCP in Louisiana]

There have been cases in the not so recent past wherein the taxpayer prevailed in reporting the value shown on the 1099-Misc, then on line 21 reducing that amount to what he was able to sell the property (in one case, a car) for, so that the FMV reflected the amount that a willing third party would pay for the property. 

Lynn

[schirallicpa]

i was considering doing that as well.

[Jack from Ohio]

Tell him to give the $16K to me, I will pay the tax on $20K and smile on the way to the bank with the rest.  Even if the tax is $5k, I am still smiling as I deposit the rest.

Some people just DON"T GET IT!! 

 

[Abby Normal]

There have been cases in the not so recent past wherein the taxpayer prevailed in reporting the value shown on the 1099-Misc, then on line 21 reducing that amount to what he was able to sell the property (in one case, a car) for, so that the FMV reflected the amount that a willing third party would pay for the property. 

Lynn

I wonder if it would matter if you sold the item to a wholesaler as opposed to an individual end user? The logic being that wholesale price is lower than market price.

[cred65]

I had a similar situation a few years back.  Don't remember the details but the transaction was reported net on Line 21 at the FMV.  KCJ advised on the reporting.  I will try to reply tomorrow with more details.  Have to go to nephew's soccer match. 

[rfassett]

So let's review.  The client gambles at a casino where his name is entered into a hat every time he makes the appropriate gamble.  His name ends up being pulled out of the hat.  Since the boat was not his intended winnings from gambling, I can not even fathom a write off of his gambling losses associated with this boat winning.  Of course he could use his gambling losses on Schedule A against any other gambling winnings, but not the boat.  That would be a very large leap.

So now he sells the boat for $4,000 less than what it was purported to be worth.  He sells it to a dealer who, as jmdaviscpa, points out, is only going to pay wholesale price for it.  So should the client be permitted to write down his winnings to the $16,000 because he did not want to try to sell it himself at retail?  I don't think that would be right.  He might be able to find some information about what the exact same boats were selling for at retail at the time and if less than the $20,000, I believe he would have an argument there.

[easytax]

Agree with rfassett . One of my clients won a new vehicle a few years ago and received 1099 on basically "suggested retail". We simply checked "other" dealers for FMV typically paid and were able to show actual value several thousand lower than 1099 on which we based the tax. No problems from IRS and we simply explained in writing our basis (of course, it was a simpler and fairer time back then).

 

[Jack from Ohio]

Tell him to give the $16K to me, I will pay the tax on $20K and smile on the way to the bank with the rest.  Even if the tax is $5k, I am still smiling as I deposit the rest.

Some people just DON"T GET IT!! 

 

I wish I would win something worth $200K and a dealer buy it for $150K.  I would pay tax on the $200K and SMILE.  People are so greedy!!

[RitaB]

can i take the loss on schedule D??

I wish I would win something worth $200K and a dealer buy it for $150K.  I would pay tax on the $200K and SMILE.  People are so greedy!!

In essence, schirallicpa simply asked if the taxpayer could deduct $4,000 since, if he doesn't, he will pay tax on $20,000 when he only got $16,000.  He didn't say the client was hounding him to take a loss, or even if the client was the one wondering about it.  I don't really see a reason to call the boat winner greedy here.  It's a good question.  Can he pay tax on $16,000 since that's what he got?  Well, sounds kind of reasonable to me, especially if this all happened within one tax year.  I understand the rationale for the question and don't see any reason to assume anybody is greedy because they want to reduce their tax liability if they can legally do so. 

[RitaB]

 

 Can he pay tax on $16,000 since that's what he got?  Well, sounds kind of reasonable to me, especially if this all happened within one tax year.

And it was sold to the same marina that donated the thing to boot.  Or to boat.   I think the guy won $16,000 myself.

[SaraEA]

What you're seeing here is a tension between the marina (which wants a big tax write-off) and the taxpayer (who wants a smaller tax bill).  Just because the marina put $20k on the 1099 doesn't mean that number is right.  We see it all the time with foreclosures--bank puts some low number in the FMV box and shows a big amount of cancelled debt.  We look it up and find the bank sold the property two weeks later for much more, so we adjust the FMV and are prepared to argue it.  IRS even says that's legit.  In your case you will put $20k on Line 21 and on the same line add -$4k "adjustment to true FMV.

I had a client who won a car and the 1099 showed list price.  She wanted a different car and the dealer gave her a lower trade-in value, even though the first car never left the lot (and therefore never depreciated).  I used the lower value as explained above and never heard from IRS.  If marinas are like car dealers, they are using list price even though no one ever pays it.  IRS employees buy cars too and should easily understand that gimmick.

[Catherine]

There is some boat equivalent for Kelly Blue Book - heck, there are ads run by boat sellers.  It should not be too difficult to establish a reasonable and verifiable FMV for the boat.  

[DANRVAN]

I would not assume that the amount shown on the 1099 is fmv.

Per RIA CHECKPOINT:

Even though fair market value of an item is usually considered the price that a willing seller and a willing buyer would agree to, the Tax Court has taken special factors into account in determining the fair marketvalue of awards and prizes. Where it is obvious that a prize winner may not be able to resell the prize for as much as the contest sponsor paid for it, resale value at the time of receipt, not cost, determines the amount of income.⁴³ Value to the winner⁴⁴ or cost to the payor⁴⁵ may also be used as factors.

⁴³McCoy, Lawrence W, (1962) 38 TC 84138 TC 841, acq 1963-2 CB 5.

⁴⁴Turner, Reginald, (1954) TC Memo 1954-38TC Memo 1954-38, PH TCM ¶54142, 13 CCH TCM 462.

⁴⁵Wade, Nathan, (1988) TC Memo 1988-118TC Memo 1988-118, PH TCM ¶88118, 55 CCH TCM 413.

Edited September 11, 2015 by DANRVAN

[cred65]

 

I had a similar situation a few years back.  Don't remember the details but the transaction was reported net on Line 21 at the FMV.  KCJ advised on the reporting.  I will try to reply tomorrow with more details.  Have to go to nephew's soccer match. 

"Have the client take the exact specs to the dealer, and get a written statement of what the dealer would pay him for it, at the time he won it. Use that to add an 'adjustment to reflect FMV' to the line 21 entries, down on the blue lines to reduce the 1099 amount. In other words, show the full 1099 amount, then 'adjust' it down. The law only requires him to report the FMV of any prize."

This is from KCJ post as a reply my similar post on 02/17/09.  It worked for my freeloading friend, who rewarded me with a meal at a marginally upscale restaurant over a drive thru.

 

 

.

 

[RitaB]

 It worked for my freeloading friend, who rewarded me with a meal at a marginally upscale restaurant over a drive thru.

Yes, the odds of tax saving strategies being successful are directly proportional to the freeloadingness of the friend.  That's how it works.  This is science.

 

Edited September 12, 2015 by RitaB

[taxxcpa]

Sounds like a $20,000 in income and a $ 4000 capital loss

Edited September 12, 2015 by taxxcpa