Financial Q&A: gold-coin sales tactics and taxes

Submit your questions to Steve Dinnen at: money@csmonitor.com

from the December 29, 2008 edition

Q: My mother-in-law wants to convert some gold coins, specifically American Gold Eagles and Canadian Maple Leafs, into CDs and/or money market funds. How does one convert gold coins into cash in order to do this? What are the IRS reporting requirements?

R.S., via e-mail

A: From high-end jewelers to coin dealers to pawnshops, you'll have little trouble finding buyers for those coins. But to maximize your profit, Alan Olsen, a certified public accountant in Fremont, Calif., with Greenstein, Rogoff, Olsen & Co., offers a few tips:

•Locate a reputable dealer. In addition to the Better Business Bureau and other resources, the US Mint's website (usmint.gov) lists dealers by state.

•Call around, as prices to buy and sell can vary greatly. In addition, prices change continually throughout the day, so try to get a time commitment for how long a quote will be valid.

•Be very wary of TV, Internet, and "get cash fast" ads.

As for taxes, Mr. Olsen notes that collectibles sales can be subject to a steep 28 percent federal capital-gains rate. (Stocks, securities, and many other investments typically carry a 15 percent long-term capital gains rate for most taxpayers.)

There are two other tax issues to consider, says Olsen. The first relates to the valuation of gold coins. When they have a numismatic value that exceeds their face denomination, the amount realized is the numismatic value of the coins, not the face value. Second, if you want to invest in the price of gold rather than the coins' collectibility, consider investing in gold strictly as a precious metal, such as through gold-mining stocks. Any profit realized by selling it is subject to full capital-gains treatment for stocks.

Q: I'm invested in the stock market, own a 44-acre coastal piece of land, and have very little equity left in my primary residence. The untimely death of my husband leaves me without real income. I'm making interest-only payments for the land to a private lender and still owe $400,000. Do I stay in the stock market or pull out to pay down the land?

N.I., via e-mail

A: Experiencing financial difficulty after the death of a spouse is, unfortunately, all too common. And clearly, something has to give, says Joseph Montanaro, a certified financial planner in San Antonio.

With no income coming in for the foreseeable future, you're going to have to consider tapping your stock or real estate investments to support your everyday expenses, he says.

Before you make a move, however, closely evaluate your expenses so you

know what really needs to be paid.

And review your assets, Mr. Montanaro suggests. Perhaps parts of your investment portfolio that may have held up during the recent market turmoil could be tapped.

If the land has substantial equity, that might be used to secure a loan for the short-term, he says.