Re: ECON: Eliezer's calls (barter)

From: Michael S. Lorrey (
Date: Sat Mar 11 2000 - 20:53:38 MST wrote:
> On Sat, 11 Mar 2000 17:19:01 -0500 "Michael S. Lorrey"
> <> writes:
> If two people agree to an exchange where
> > no
> > cash changes hands, then presumably its an even trade, i.e. no
> > income or
> > capital gain is realized. If this is so, how can it be taxed?
> >
> > Mike Lorrey
> A dealer or trader who operates as a sole proprietorship business files
> Form 1040 Schedule C and reports his gross cash income from exchanges
> during the year, and deducts the cash cost of goods and qualified
> business expenses, and reports the fair market value of his trade goods
> inventory as of the end of each year. It makes little difference whether
> he does cash deals or strictly barter; either way the net profit will
> show up on Schedule C.
> Suppose you start the year with a pig worth $50 (fair mkt value you
> reported) and no cash. The pig is your inventory and it has a fair
> market value of $50. You trade the pig for a horse. At this point it
> doesn't matter tax-wise what the horse is worth, to you, or to anyone
> else. Then you trade the horse for a saddle. Again, at this point it
> doesn't matter tax-wise what the saddle is worth, to you, or to anyone
> else. You trade the saddle for a cow. You trade the cow for a
> motorcycle. You trade the motorcycle for a car. Then you trade the car
> for another car, and the tax year has ended. You still have no cash, you
> do not have the pig you started with, but you do have a car. The car is
> your inventory. Say it has a fair market value of $1,000. That is your
> end of year inventory value. There has been no cash income and no cash
> expenses or cash cost of goods, so the net Schedule C income for the year
> is $1000 - $50 = $950.

So what you are saying is that even if you still own the car, and every
trade was considered even at the time of the trade by the participants,
that you have to pay a tax on the increase value of the property, even
if you haven't sold the property? Thats bogus. Property taxes are direct
taxes and are not legal for the feds to impose. This is really annoying
me. I'll have to do some research on this issue.

Mike Lorrey

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