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.

[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

[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.

[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 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

[birdman42]

.

[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.

[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/

[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.

[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