IRS tax question

[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.