OT: One Red Paperclip

From:

"The Department takes the view that barter transactions are within the purview of the Income Tax Act. Such transactions can therefore result in income or expense as contemplated by sections 3 and 9 thereof or can result in the acquisition or disposition of capital property, eligible capital property, personal-use property or inventory, depending upon the circumstances of the persons who are bartering and the nature of that which is bartered, on the same basis as if cash was the consideration."

;-(

-- Joe Legris

It's much more interesting to read his blog, rather than various news stories.

Our system isn't so bad, it's aimed at trying to prevent someone from earning a tax-free income from off-record transactions, to make things more fair for the rest of us who make full payments. It's supposed to be a voluntary reporting system. It's rarely enforced, with the exception of prominent eBay dealers, traders in real property, etc.

I'll bet it's similar. But again, I imagine you have to rise to a certain level of visibility. As for the paperclip guy, surely the value of each item while he still owns it could be his cost of procurement. This might establish the basis for his new house at a rather low level, but then when he sold it, the remainder would all be taxable real-estate gains.

Here in the U.S. we have a break: "You can exclude up to $500,000 on a joint tax return of the taxable gain on a home sale... You must have owned and occupied the home as your principal residence for at least two of the five tax years prior to the sale."

As for the Red Paperclip guy, his considerable expenditures in making the exchanges would also be part of his home-cost basis.

Folks are acting like this is something new. I remember Captain Kangaroo reading this story on the Treasure Ship.

From the IRS Publication 523, "If you acquired your home as a trade for other property, the basis of your home is generally the fair market value of the other property at the time of the trade." Hah, try figuring his deal's market values. I think he could make a good argument the trades were primarily gifts.

At any rate, the hit will come when he disposes of the house.

In Australia here we don't pay capital gains tax on our main place of residence. We also get a "First home owners grant", so I wonder what would have happened if the Red Paperclip Guy got a house in Australia?, the goverment may have given him some cash too!

I can't believe he actually did it!, very lucky indeed.

Dave :)

I was here in Florida on vacation with my family back in the '60s and watched as someone gave my uncle a lawn mower that didn't run. He had it running about 15 minutes later and was testing it in his yard when one of his neighbors offered to trade it for a riding mower that didn't run. A few hours later the deal had been made, and he had that mower running. After supper a friend of his stopped by and saw the riding mower. He ended up trading him for a car that needed some repairs. By the next evening he had the car running, licensed and insured and gave it to one of his kids to drive to school. Not too bad for a 36 hour period, considering the car ran for about four years while his daughter was in college and he hadn't spent $10 for all the parts. :)

He could claim that each barter was straight across, which would make the cost basis of the house equal to the value of one paper clip. Unfortunately, the IRS seems to have a little known rule which basically says, "If we don't like the way the numbers come out, we change the rules."

The nightmare would be if this guy had to document each barter and get an appraisal on each item.

If the basis is the initial paper clip, yes.