Taxpayer asks:
I thought the Postal Service’s “forever stamp” was a great idea. I stocked up on forever stamps at 41 cents each right before the new postage rate went up to 42 cents. Now I have a dilemma. Since these forever stamps with a basis of 41 cents are now worth 42 cents when I stick them on my letters (well, bill payments really), must I report a one cent capital gain? Maybe I’m stretching my compliance a bit, but how about those big mailers?
Taxgirl says:
What a great question!
You can put away your calculator, though. No need to report that gain on your tax return.
Here’s my really abbreviated explanation of capital gains as they apply to individual taxpayers: You only report capital gains on the sales of capital assets. Capital assets can be thought of, in simple terms, as assets that are used to create more wealth. This would include (but is not limited to) non-cash assets such as those that can be inventoried (like art collections), real estate, cars and stocks.
Ordinary stamps aren’t capital assets – they are considered supplies – and using stamps for the purpose for which they were bought (mailing) is not a taxable event.
To put it another way, every asset that increases in value isn’t subject to capital gains. Take wine for example. I can buy a nice wine that increases in value. But if I drink the wine – even if it has increased in value – that isn’t a taxable event subject to capital gains.
Of course, if instead of stamps for use in mailing, you collected stamps (or the wine in my example) as an investment, the sale of those stamps or wine for gain would be a taxable event. In that event, there would be a reportable gain.
It’s also worth noting that a loss from the sale or exchange of a capital asset held for personal use is not deductible.
You’re probably getting the idea that capital gains can be tricky – so if you have specific questions, I would recommend that you contact your tax professional.
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.
