IRS tax question

[GregMitch34]

Forgive my basic question here but: There's a chance I may sell part of my collection next year via an AH. I have only done this once in my life, and even then just two lots for a total under $5000. So this would be quite new for me. I am purely a small time collector, never had a store or "business."

So: after the sale, what does the AH report to the feds, or do they send a tax document to the consignor? Or neither? Or at what dollar figure does that kick in? Then, with an official doc or not, what is consignor on the hook for reporting, and at what level does that kick in? How does IRS handle whatever you do report? Are there rules/laws you are supposed to follow, but many don't? Thanks for any replies.

[birdman42]

I can't answer for the AH side on what gets reported to the IRS and how. I'd be interested to hear someone from an AH ring in.

Here's how it happens on your end. BB cards are considered capital assets just like shares of stock. It's up to you to keep track of three figures for each item, and report the sale no matter the amount. In the breach, I'd imagine small amounts don't get reported.

The holding period--a year or less between the purchase and the sale is short-term, more than a year is long-term.
Your basis--the purchase price plus any costs (AH purchase commission, sales tax, inbound shipping, and grading are the most likely). If you acquired something in a trade the basis of the item you gave in the trade carries over to the item you received, +/- any cash.
Your receipts--the selling price minus the costs of sale (AH seller's commission and outbound shipping are the most likely here). You'd have to check with the AH to see whether they reported your receipts as the gross selling price or net of fees. And unlike stocks, the AH has no idea what your basis is.

The dollar figures seem straightforward, but if you acquired items as part of a group you have to be careful about how you assign costs.

--From here on, this is based on the tax code as it stands right now. Who knows what will be in place for 2018.--

For any one sale you can net all the short-term results against each other; the same with the long-term results. That is, if your only sales were through a single AH one time, you can report one ST result and one LT result. If you sold on multiple occasions, each occasion should be shown separately. The info goes on Form 8949, which carries to Schedule D.

Short-term gains are taxed the same as ordinary income. Long-term gains may get special treatment. Because BB cards are considered collectibles, gains are taxed at ordinary rates up to a max of 28%. So if you're in the 15, 25, or 28% bracket you won't see any tax advantage from the sales. If you're in the 33 or 39.6% brackets then you will.

If you have a loss, you can take a max of $3000 against your 2018 income; the rest carries forward into future years.

This is not to be taken as "tax advice," but as a statement of facts. For specifics you'd need to provide the details to a tax advisor. (I could be that person in a non-public setting.)

Bill Todd

[Leon]

Auction houses don't report the consignment sales to the IRS as far as I am aware. At least I know Heritage doesn't. They gave me a final reconciliation sheet and I gave it to my CPA with my cost basis. He did the rest.

[steve B]

damn, I guess I'll have to be buried with mine. Most of them I have no idea what I paid, or it's so little as to make any sale almost entirely reportable.

When I was doing Ebay I was making less than 1K a month, and we just reported it as income from a hobby business. I think under miscellaneous income. Most years I "lost" money because of storage and stuff I bought and kept or didn't get around to selling. But we reported some small amount anyway. (I believe technically I should have sold the stuff I kept to myself, and "inventory" above what I had the year before should have been counted as profit. But anyone questioning it would have been welcome to count the remaining cheap cards. lets see, last year I had 15,000 81 Topps give or take, how many do I have now? )

[GregMitch34]

Bill--

Thanks for your lengthy and mostly clear reply. But perhaps one example might help a little. Let's say you sell 30 cards via an AH for let's say $30,000. They take their $6000 which I can you report as fee or whatever. Of the $24,000 you get you judge that you only made about $4000 above what you paid for those same cards. However, each card is different--on some you made big profit, on others loss; some you purchased ten years ago, others in past year. The ones from long ago you may not even recall what you paid so you are guessing. So what do you report here? Just a straight $4000, or $24,000 minus whatever, or you submit a breakdown of all 30 cards as best you can? Thanks.

[Baseball Rarities]

Originally Posted by birdman42

Here's how it happens on your end. BB cards are considered capital assets just like shares of stock. It's up to you to keep track of three figures for each item, and report the sale no matter the amount. In the breach, I'd imagine small amounts don't get reported.

The holding period--a year or less between the purchase and the sale is short-term, more than a year is long-term.

I am not an accountant, but this is not how it has been explained to me. AFAIK, the sale of baseball cards falls under "collectibles" which are all taxed as short term capital gains (ordinary income) - 28% -, no matter the holding period.

Please verify all of this with your CPA.

[sb1]

Originally Posted by Baseball Rarities

I am not an accountant, but this is not how it has been explained to me. AFAIK, the sale of baseball cards falls under "collectibles" which are all taxed as short term capital gains (ordinary income) - 28% -, no matter the holding period.

Please verify all of this with your CPA.

That is what I believe to be correct, further you cannot deduct any "expenses" incurred such as bank box, insurance, grading, etc.

[birdman42]

Originally Posted by Baseball Rarities

I am not an accountant, but this is not how it has been explained to me. AFAIK, the sale of baseball cards falls under "collectibles" which are all taxed as short term capital gains (ordinary income) - 28% -, no matter the holding period.

Please verify all of this with your CPA.

As a tax person I can tell you for certain that the short-term gains are taxed at the same marginal rate as your other ordinary income--wages, rental, interest, etc. That type of income caps out at 39.6%, the max for anyone. This is the same treatment as for capital gains from non-collectibles.
Long-term gains on collectibles are also taxed at the same marginal rate as ordinary income except that the rate is capped at 28%. If you're single, and your only income for the year is a net of $60,000 from selling cards held long-term, then the first $9325 of taxable income is taxed at 10%, the next $28625 is taxed at 15%, and anything over that is at 25%.
If your net income from cards were $260,000, then the amount at 25% would be $54950. The rest would be at 28%, even though the 28% bracket for ordinary income ends at $191650.

[birdman42]

Originally Posted by GregMitch34

Bill--

Thanks for your lengthy and mostly clear reply. But perhaps one example might help a little. Let's say you sell 30 cards via an AH for let's say $30,000. They take their $6000 which I can you report as fee or whatever. Of the $24,000 you get you judge that you only made about $4000 above what you paid for those same cards. However, each card is different--on some you made big profit, on others loss; some you purchased ten years ago, others in past year. The ones from long ago you may not even recall what you paid so you are guessing. So what do you report here? Just a straight $4000, or $24,000 minus whatever, or you submit a breakdown of all 30 cards as best you can? Thanks.

Greg,

You can report two figures that are the net of all transactions--one for the long-ago purchases and one for the previous-year purchases. You just need to be able to support your numbers if your return were ever questioned. For example, I have paper receipts for many of my cards, but for others the only record I have is the amount I entered on an Excel spreadsheet. Those numbers are generally in line with the ones I do have receipts for regarding appreciation over the years, so I'd like to think the spreadsheet would be accepted as evidence.

Bill

Bill

[Baseball Rarities]

I did not see where you mentioned that the maximum rate is increased from 15% to 28% for long term capital gains.

[Baseball Rarities]

Here is another good article that I just found with a Google search:

http://1040return.com/collectibles-tax-collector/

[birdman42]

Originally Posted by sb1

That is what I believe to be correct, further you cannot deduct any "expenses" incurred such as bank box, insurance, grading, etc.

Scott,

You are correct that you can't deduct those expenses in the current year as "investment expenses" on line Schedule A line 23. What you can do is bake those expenses into the basis of the cards. Instead of taking the expenses against ordinary income at the time, you're taking them against capital gains at the time of disposition. Whether it makes any difference in the end depends on your relative income levels at the time of the two events.

It can get very messy trying to apportion group expenses such as an insurance policy among a whole box of cards, but it can be done. Just keep records.

Bill

[BobC]

Originally Posted by GregMitch34

Bill--

Thanks for your lengthy and mostly clear reply. But perhaps one example might help a little. Let's say you sell 30 cards via an AH for let's say $30,000. They take their $6000 which I can you report as fee or whatever. Of the $24,000 you get you judge that you only made about $4000 above what you paid for those same cards. However, each card is different--on some you made big profit, on others loss; some you purchased ten years ago, others in past year. The ones from long ago you may not even recall what you paid so you are guessing. So what do you report here? Just a straight $4000, or $24,000 minus whatever, or you submit a breakdown of all 30 cards as best you can? Thanks.

As birdman42 said, since you aren't considered to be in the business of selling baseball cards as a dealer, the sale is treated similarly to sales of capital assets like stock. You would normally report the sale of each individual stock separately, showing the original cost basis for each against the sale price of each, less any "selling expenses" you incurred. There is an exception if you do all your stock trading through a specific investment account and the sales activity is appropriately being reported to the IRS. In those instances you can get away with just reporting the total sales proceeds, total costs basis and total selling expenses of the various categories of long or short term gains, and attaching a copy of your 1099-B form or other statements from your investment firm that shows all your stock trading activity for the tax year.

Technically you are supposed to do the same thing with the sale of cards and report the sale of each one as a separate activity. As others pointed out already, it is unlikely that auction houses are reporting your sales activity to the IRS, and you can always ask them up front before selling through them what their policy is on that just to make sure. Truth is, there is no special form or requirement that auction houses report sales info to the IRS currently. You only sold 30 cards in your example so it would be fairly easy to know what your sales proceeds were for each card/lot sold, and also the amount of commissions/selling costs you had for each card/lot sold. As you said though, the problem is going to be in coming up with the cost basis for each card/lot that was sold. Since in your example I assume you sold the cards all in the same auction, rather than trying to report and calculate the gain or loss on each individual card, I would suggest simply reporting them as one large group and report the total sales proceeds and commissions/selling costs for what they actually were. Now for the costs basis, I would suggest gathering as much detail and records as you do have for any of the cards in the group being sold, and then do your best job of estimating what you have into the remaining cards you can't find specific cost records or data for. Write down and record everything you can think of that would collaborate or support you estimated cost basis and then use that to report your calculations on your tax return. That way if the IRS ever did come back and challenge your figures you would have documented to the best of your ability what your correct basis in the cards was. It may not be perfect but, it demonstrates that you tried your best to determine your basis in the items being sold and, believe it or not, IRS agents are not always evil goons that demand exact documentation for everything.

Now that is what I would suggest if you ended up having a net gain on the sale of all the cards. If you end up with what you feel is a net loss instead, it may not be as cut and dried that you automatically get to deduct that loss against other gains or income you may have. That is because losses from the sale of items that are considered as personal use property (such as the sale of your car) are not deductible in any instance. And just because you have and collect old baseball cards does not automatically make you an investor, and the cards themselves investments, whereby you would be able to calculate and deduct your losses on such sales as capital losses. You sound like you are mostly a collector, with no long-term track record of purchasing and selling cards. As such, if you suddenly reported a loss, especially a sizable loss, from the sale of cards on your tax return, that could cause you to get some additional scrutiny, A potential IRS argument could be that you are a collector and your cards were not specifically for investment purposes, and therefore you would/could be denied deductibility of the losses because they considered them personal use property of yours instead. And if you tried taking the losses claiming you had entered into the card business, you may come up against the hobby loss rules and get deductibility denied on that count because you have no history of ever having made money selling cards. In such an instance, if you end up with a loss, your best bet may be to just report nothing on your tax return instead.

The best answer to your question depends a lot on the specific facts and circumstances in your particular case. It is not always a straight forward, objective answer, and something you should run by your tax advisor.

[birdman42]

.

[insidethewrapper]

I think I'll just keep everything and let my estate have it and pay no taxes. For example: If I bought a card at $ 1000 five years ago and sell it now at $ 2000 I would have additional income of $ 1000. If I die and my son gets it, he gets it at current market value $ 2000 and sells it at $ 2000 therefore no tax. Doesn't matter what the purchase price was. At least that what I have been told.

No, I'm not a tax expert, but I did sleep at a Holiday Inn recently.

[bnorth]

Originally Posted by insidethewrapper

I think I'll just keep everything and let my estate have it and pay no taxes. For example: If I bought a card at $ 1000 five years ago and sell it now at $ 2000 I would have additional income of $ 1000. If I die and my son gets it, he gets it at current market value $ 2000 and sells it at $ 2000 therefore no tax. Doesn't matter what the purchase price was. At least that what I have been told.

No, I'm not a tax expert, but I did sleep at a Holiday Inn recently.

You could just do like 99.9% of people do, sell the card and pocket the cash.

I am not a tax expert but I did get a lecture from my accountant on the subject last year.

[BobC]

Originally Posted by insidethewrapper

I think I'll just keep everything and let my estate have it and pay no taxes. For example: If I bought a card at $ 1000 five years ago and sell it now at $ 2000 I would have additional income of $ 1000. If I die and my son gets it, he gets it at current market value $ 2000 and sells it at $ 2000 therefore no tax. Doesn't matter what the purchase price was. At least that what I have been told.

No, I'm not a tax expert, but I did sleep at a Holiday Inn recently.

That may change depending on what ends up happening with the Republican tax reform plans. (And no Leon, this is not a political commentary, it is tax planning for what we can do with our cards when we pass on.) Part of the proposed tax reform program talks about doing away with estate taxes. Under the current tax law, when you pass and leave items to your heirs, the entire estate gets valued at fair market value when you pass and is subject to estate tax. Most people don't have to worry about paying any estate taxes because the government allows each of us to currently pass on $5.49MM ($10.98MM for a married couple) in net estate value to our heirs, and owe no estate taxes. But because the assets being passed on were subject to being valued at their then fair market value (FMV) and potentially subjected to estate tax, the heirs get to receive these inherited assets at their "stepped up" fair market value.

So as the OP said, under current law if he passes away and leaves a $2K card that he paid $1K for to his son, his son can then sell the card using the current $2K FMV and have no gain on the sale and owe no tax. Now I don't know how the final version of any Republican tax reform laws will read but, if they do away with estate taxes entirely, I would also assume they then do away with this basis "step up" that inherited assets are getting under current estate tax law. In that case, if the OP passed and left his son the $2K card that he only paid $1K for, it would stand to reason that the son would inherit the card, and the deceased's $1K cost basis in the card. So now when the son goes to sell the card for its current $2K FMV, his basis is only $1K and he now has a $1K gain to pay tax on.

Like I said, no one knows what the final tax laws will look like in regards to estate taxes under Republican tax reform, or if it will ever even pass. But just remember that if the "Basis Step Up" goes away along with estate taxes, the 99+% of people that pass away without currently owing any estate taxes and can leave their children their card collection pretty much tax free if the kids sell it right away, may now be leaving their kids a potential tax hit if they go to sell the card collection and have to use their parent's basis in the collection for determining gain on the sale. Oh, and don't get me started on how will the kids even know (and prove) what their parent's cost basis was in the collection to begin with.

[RedsFan1941]

i have little doubt there is some good advice in this thread. however, i would be cautious seeking tax help on a public chat board in which some of its members think the solution to not receiving an auction catalog is to post days or weeks after the auction has ended that they never got one.

[birdman42]

Originally Posted by Baseball Rarities

I did not see where you mentioned that the maximum rate is increased from 15% to 28% for long term capital gains.

The max rate for long-term capital gains is 20% for those in the top bracket, unless those gains come from collectibles. See post #8 for an example that puts numbers with the theory.

Bill

[vargha]

Fortunately, I have always lost money on the sale of every collectible I have ever owned. I swear.

[MikeGarcia]

Originally Posted by vargha

Fortunately, I have always lost money on the sale of every collectible I have ever owned. I swear.

..fortunately , Fort Worth ain't all that far from Leavenworth , so you'll get a fair number of visitors , come Sunday..
..

[Jeffrompa]

From eBay and auction houses , btw the fine for under reporting is $ 25000 . Nobody wants that .

[insidethewrapper]

I've been told that since the New Tax laws of 2018 took effect that you can't deduct any expenses involved with the sale ( not original purchase price, etc ).

Pre-2018, if you bought a card or set for $ 1000 and sold for $3000 you would pay a tax on the $ 2000 profit. Since 2018-Present, you would have to pay a tax on the $ 3000, since you can no longer deduct the $1000. ( This only applies if you are not a business, but selling as a collector or hobby on the side). If a business you would use Schedule C and deduct the expenses etc.

Any tax experts out there to confirm the above ? Thanks

[Rhotchkiss]

Please clarify what you mean by the “New Tax Laws of 2018”. Do you mean the Supreme Court ruling about the application of State Sales Tax on internet sales? Because if so, and I assume that’s what you are talking about, a court ruling about the application of state sales taxes has ZERO to do with how taxable gains are determined for Federal Income tax purposes.

Regarding sales tax, the tax is due on the gross sales price, apparently including shipping costs.

Regarding federal taxes, you only pay taxes on your gain (gross price minus basis and all costs). Thus, your example is flat out incorrect for federal tax purposes.

[ullmandds]

Originally Posted by Rhotchkiss

Please clarify what you mean by the “New Tax Laws of 2018”. Do you mean the Supreme Court ruling about the application of State Sales Tax on internet sales? Because if so, and I assume that’s what you are talking about, a court ruling about the application of state sales taxes has ZERO to do with how taxable gains are determined for Federal Income tax purposes.

Regarding sales tax, the tax is due on the gross sales price, apparently including shipping costs.

Regarding federal taxes, you only pay taxes on your gain (gross price minus basis and all costs). Thus, your example is flat out incorrect for federal tax purposes.

+1

[sb1]

As a collectible with a max tax rate of 28% you have never been allowed to deduct any related expenses(bank box, insurance, travel, etc) only the actual cost of the item.

[ullmandds]

Originally Posted by sb1

As a collectible with a max tax rate of 28% you have never been allowed to deduct any related expenses(bank box, insurance, travel, etc) only the actual cost of the item.

i thought you could deduct costs related to the sale? like AH fees?

[Rhotchkiss]

Right. There are no ordinary or necessary business expenses associated with a collectible, but like stock etc, you can add any transaction fees you incur on acquisition and disposition to your basis.

I buy a card for $1000 with BP and then pay another $100 in taxes, shipping, etc. my basis is $1100, and if I sold it immediately for $1100, I would have no gain.

Three years later I sell the card for $1700. My taxable gain is $600 ($1700 - $1100 basis). If there are costs associated with the sale, then those reduce my gain. Let’s say I sell the card for $1700 on ebay, but eBay and PayPal take 10%, or $1700, then my net amount realized is $1,530. You subtract the $1100 basis and my taxable gain is $430.

Scott is correct that you normally do not deduct or capitalize costs associated with owning the card (storage, insurance, etc); although from a tax perspective, I don’t see what you shouldn’t be able to capitalize these costs to the basis of the card.

BTW- To quality my comments, I have a masters is tax law from Georgetown and practiced tax (and real estate) law for 7 years before I gave that up in 2006.

[GeoPoto]

I think there is an annual # of transactions threshold that triggers responsibility on the auctioneer's part to issue you a document with a copy to IRS showing your gross receipts. eBay does this. It is like a broker/custodian reporting gross financial asset sales. The presumption is that you can "explain" the tax consequences by citing a cost basis to compute a gain or loss from the gross receipts.

[ruth-gehrig]

Someone pass the bottle of Excedrin Migraine please

[insidethewrapper]

I found this while searching the internet

Hobby expenses

Most hobbies — even those that earn you income — also cost money. Prior to the 2018 tax year, you could deduct hobby expenses equal to your hobby income. For tax years after 2018, this deduction is no longer available.

Since tax reform has significantly increased the standard deduction for 2018, you may be thinking you’ll likely lose the ability to deduct hobby expenses if it no longer makes sense for you to itemize. In fact, it doesn’t matter whether you do or don’t itemize — you’ve lost the deduction for hobby expenses in 2018 anyway because tax reform removed the miscellaneous deduction.

“Under the new tax reform bill, there is no place to deduct the expenses, so income will be recognized but the expense will not, starting in 2018,” says Alan Pinck, an enrolled agent and founder of A. Pinck & Associates, San Jose,


https://www.creditkarma.com/tax/i/hobby-income-taxed/

[Rhotchkiss]

That may be the case under the Trump tax law -- I am not too familiar with it and I no longer actively practice tax law. BUT, there is a fundamental difference between deductions and capitalizing costs. And I am not talking about deductions. You cited info about deductions.

Deductions are immediate reductions to income (in the tax year incurred) for allowable expenses, most often ordinary and necessary business expenses. A capital expense is one that you add to the cost of the asset, which in turn increases your basis and impacts gain or loss on sale. Again, I do not know the current tax law, but I would be very surprised if you could not add to your purchase price the cost of taxes and shipping etc, as well as costs associated with a sale. These are not deductions.

For example, if you bought a vacant piece of land in 2000 for $100,000 and are now selling it for $250,000, you would have $150k gain. But, lets say you use a broker, who earns 6%, to sell the land, and you also pay transfer taxes of 1%, for a total of $17,500. Under Federal tax law, you are entitled to reduce your gain by that $17.5k. Thus, the taxable amount would be $250k - $100k initial cost - $17.5k selling costs = $132.5k gain recognized upon which a tax applies. AND this makes sense. You did not get the economic benefit of the $17.5, someone else did (the broker and the state/county) so you should not pay taxes on items you did not recognize the economic benefit on. Plus, the broker will pay taxes on their 6%, which would result in the same dollars being double taxed - once to you even though you did not receive the economic benefit, and once to the broker who did get the benefit and is the proper party to bear the tax.

Again, I do not know the Trump tax laws well at all. And, the government has times before passed tax laws that dont make a lot of sense. But basic principals of Federal taxation dictate that (i) you should not pay taxes on money you do not get the economic benefit from, and (ii) costs incurred in connection with the purchase, maintenance, and disposition of a capital asset should be added to the cost basis of that asset.

[GeoPoto]

Originally Posted by Rhotchkiss

(ii) costs incurred in connection with the purchase, maintenance, and disposition of a capital asset should be added to the cost basis of that asset.

I think improvement might be better than maintenance. Fixing a broken window doesn't add to basis; replacing it with a better version might. Getting raw cards graded would add to basis; the cost of boxes to store them in might not. (Raw cards graded are improved financially -- that is the only context in which I am saying they are improved. Nobody needs to defend the virtue of raw cards here.)

[Rhotchkiss]

Agreed

[dabigyankeeman]

Having collected for 40+ years, I have no idea on most cards what I paid for them, who I bought them from, and of course no receipts. If I sold my collection thru an auction house, and reported it to the IRS, I would have to totally estimate what I paid for the whole bunch.

Would the IRS accept what I say with no proof, and if not, what happens?