Placing value on individual items when all were purchased at auction as one lot

Question

I buy most of my inventory at a local auction. I will pay one price for several items in a single lot. Some items, I sell on ebay and some get discarded as unsellable. If I pay 100 for a lot of random items, how do I value each item listed for tax purposes?

wooden_flower · Answer

@daddys_toys

There could be many reasonable ways to assign value. You want to pick a method and then use it consistently. Document your methodology and your math.

I would use the fair market value of the items as a basis for prorating the costs. So if you had items you expect to sell for 5 and 10 and some worth 0, I would allocate the cost over the 5 and 10 proportionately - so 1/3 to the 5 and 2/3 to the 10, none to the 0 value items.

This is a simple example - expand it to include a list of all of the items with value, then prorate the total purchase cost over the sum of the expected values.

If you are not comfortable creating your own methodology, you should seek the advice of a tax specialist.

I am not a tax preparer, and this is not intended as tax advice.