Quote:
Originally Posted by Smarti5051
Not to hijack the thread, but I do have a cost of goods/basis question regarding the sale of cards. Let's say you buy a 1915 Cracker Jack set for $100,000 at auction. Five years later, the set is worth $200,000. At that time, you list and sell the Ty Cobb card from the set for $50,000. You retain the remainder of the set. How do you determine the cost basis (or cost of goods sold) for purposes of determining taxable gain?
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That is an absolutely great question, but unfortunately, one with no specific, 100% correct, black and white answer. There are various ways you could go about doing this, but it will most likely come down to making some kind of reasonable guesstimate. And you'll also want to be sure to keep good notes and records so you can properly report future transactions involving other cards from the set in an accurate and consistent manner as well. So after having said all that, here are some options I'd suggest.
1. This is the best option of all, but can only be done if you do this when you first buy the set. You sit down with the seller and you list out and assign an agreed upon value for each card in the set that adds up to the $100K you're paying for it. Or you can go and assign an agreed upon value for all the star/HOFer/rare cards in the set, and leave the residual value up to the $100K being paid to be evenly divided among all the common or other cards not separately listed and valued. As long as you and the seller are not related, the IRS can't really argue whatever you two decide to value each card in the set at. This will likely help the seller also, as he should be reporting the sale for tax purposes as well. And if he acquired the set card by card originally, each card, not the set as a whole, is going to have its own tax basis that he's likely going to need to report on his own return. And remember, if he's selling the set as a Collector, any cards in it that he sells for a loss would not be tax deductible by him. So if he way overpaid for the Cobb in the set, as part of your deal the two of you could agree on a higher value for the Cobb, so the seller doesn't get stuck with a non-deductible tax loss. I would also suggest maybe having two copies of the list of agreed upon card values made up so both of you could sign each list, and then each keep a dual signed copy for your tax records. Of course, this only works if the seller agrees to it, and I can easily think of at least one reason they may not want to.
2. However, if you had bought the set already, but had no card value deal or list with the seller, you could go and hire someone qualified to act as an appraiser of the set, and give you the current appraised values of each card in the set. You would then do some math to determine what percentage each card's appraised value was to the appraised value of all the cards in total. And then just multiply that card's percentage by the $100K you paid for the whole set, and voila, you use that result as the card's tax basis for tax reporting purposes. (For example, appraiser says a card is currently worth $40K, and the appraised value of all the individual cards in the set total up to $200K. So $40K / $200K = 20% X $100K = $20K as the tax basis of that particular card.) This method would be particularly relevant for a set that had many different grades/conditions of cards in it that caused their values to fluctuate greatly. However the time, effort, or cost for you or a hired appraiser to do all this might prove too prohibitive. If you do this, be sure to keep all your notes, records, appraisal, and consistently follow the same methodology in determining the tax basis of every other card in the set.
3. This may be the most reasonable, and doable, option of all. Go back to when you first bought the set, and then go find a published checklist with estimated card values, for that set, from as close to when you originally bought it as possible. Use those published card values to then do a similar calculation, as shown in Option#2 above, to come up with your card's tax basis. If the checklist shows an overall value for the entire set, along with the values for individual cards, ignore the listed overall set value. Instead, add up the listed values of all the individual cards and use that as the total set value that is the denominator in the formula shown in Option #2. If you originally acquired the set from years ago when they were still publishing the SCD catalogs, those would be the perfect kind of check/value lists to use for this exercise. They typically listed a value for every card in the set, at least for the vintage sets, and they showed values by card for various conditions as well, usually NM, EX, and VG. In this case, I'd even go a step further and look at the overall average condition of the cards in the set, and specifically use the listed card values for the condition closest to what the cards in the set actually were, for this tax basis calculation. This methodology makes even more sense the more consistent the condition is among all the cards in the set. Though by no means perfect, this method at least gives you a logical way to figure each card's tax basis. And as with the other Options, if you choose to use this one, remember to keep all your notes, records, and calculations, and be sure to consistently apply the same calculations and methodology when determining the tax basis in all the other cards from this set as well.
Some overall comments. Don't forget that when determining the original cost basis, you may need to add in some other costs besides just the original purchase price, as well, like maybe shipping to have cards delivered to you. If so, for something like shipping costs, just spread that kind of cost equally across all the cards in the set, and add it onto the tax basis for each card you previously calculated using that formula shown in Option#2. In some cases, after acquiring a set you may have some of the cards graded, re-holdered, whatever. If so, those grading fees and costs (postage, etc.) also become part of the tax basis of those specific cards going forward. Assuming you kept records of which cards you had work done on, and the costs involved, simply add those costs onto the previously calculated tax basis for each relevant card. But if you didn't keep details of the specific cards involved, as long as I could show a cost was incurred, I'd go ahead and at least spread the cost across all the cards in the set. And what if you ever upgraded a card in the set after the original purchase? Hopefully you kept details/costs of the upgrade acquired. In which case you would remove the card you're replacing, and its previously calculated tax basis, and swap it out for the replacement card and its tax basis as a part of the overall set's tax basis now. This isn't anyway near all the potential issues, but should cover a good chunk and the most common of them. Good luck!