Cost basis - Warning tax related topic

ValKehl · #1 09-02-2022, 09:50 AM

Quote:

Originally Posted by Smarti5051

I believe the least objectionable method from the IRS point of view would be to assess the relative value to each card in the lot. So, for instance, if you paid $10,000 for a box that had 999 1987 Topps commons and a PSA 2 1933 Goudey Babe Ruth, the cost basis for the Babe Ruth would be $9999 and the remaining 999 commons would have a combined cost basis of $1. If you try to claim the Babe Ruth cost basis is $10 in that scenario, prepare for some nice penalties and interest at the conclusion of your audit.

Generally, it is your job to prove to the IRS auditor (or ultimately the tax court) that you reasonably allocated the cost basis of multiple cards in a lot. If your method sounds the least bit sketchy or skewed in your favor, it is unlikely to fly with the IRS. In fact, my limited experience in audits is that even if you do act reasonably and fairly in preparing your taxes, you have the additional hurdle of having to educate a skeptical auditor about a hobby or business that does not understand it as well as you do (which actually hurts, not helps you in most cases).

Scott, I would think the IRS would be delighted if the person sold the Ruth and declared a cost basis of $10 on his tax return, thereby paying a significant amount of tax on his profit.

Stupe the Second Sacker · #2 09-02-2022, 09:59 AM

Makes sense guys...Thank you for the advice. It does raise the next question. How can you prove what else came in the lot?

And can you use reasonable value (average of recent sales) as a cost basis cards you don't have receipts for? Do you have translate those values to market value in the year you bought the card?

PS...What a nightmare for the casual seller.

raulus · #3 09-02-2022, 10:20 AM

Quote:

Originally Posted by Stupe the Second Sacker

Makes sense guys...Thank you for the advice. It does raise the next question. How can you prove what else came in the lot?

And can you use reasonable value (average of recent sales) as a cost basis cards you don't have receipts for? Do you have translate those values to market value in the year you bought the card?

PS...What a nightmare for the casual seller.

In terms of proving what came in the lot, you probably have a receipt from the auction or purchase. If you were extra paranoid about the details not being spelled out, you could always sit down and document it when you acquired the lot.

In theory, you should be using relative current market values to allocate the purchase price between the items acquired.

Is it a nightmare for a casual seller? I'm guessing that a casual seller doesn't sell a lot, or at least not in high dollar amounts. And if I had to guess, they probably don't worry about attempting to report it on their taxes. Not that I would ever encourage such scofflaw behavior!

Stupe the Second Sacker · #4 09-02-2022, 11:36 AM

Quote:

Originally Posted by raulus

In terms of proving what came in the lot, you probably have a receipt from the auction or purchase. If you were extra paranoid about the details not being spelled out, you could always sit down and document it when you acquired the lot.

In theory, you should be using relative current market values to allocate the purchase price between the items acquired.

Is it a nightmare for a casual seller? I'm guessing that a casual seller doesn't sell a lot, or at least not in high dollar amounts. And if I had to guess, they probably don't worry about attempting to report it on their taxes. Not that I would ever encourage such scofflaw behavior!

For items purchased at an auction house or ebay, yes there are receipts. But shows? Responding to ads in the paper? No receipts.

I don't follow the "relative current market values" comment. If I bought a Pete Rose card at a show 15 years ago and don't remember what I paid...what is the cost basis? Not talking about a lot here...individual cards.

I think there are plenty of casual sellers that sell over $600 in a year. That's not difficult to do, especially these days.

raulus · #5 09-02-2022, 11:41 AM

Quote:

Originally Posted by Stupe the Second Sacker

For items purchased at an auction house or ebay, yes there are receipts. But shows? Responding to ads in the paper? No receipts.

I don't follow the "relative current market values" comment. If I bought a Pete Rose card at a show 15 years ago and don't remember what I paid...what is the cost basis? Not talking about a lot here...individual cards.

I think there are plenty of casual sellers that sell over $600 in a year. That's not difficult to do, especially these days.

Allow me to update my comment about "current market value". I was referring to current market value at the date of acquisition, not as of today's date. If I purchased 100 cards in a large lot 15 years ago, then I would use the relative market values at the date of acquisition to allocate the cost between those 100 cards.

If you can't remember what you paid for a card from 15 years ago, then it sounds like your basis is probably zero. I would be tempted to dig deep into my memory to come up with a ballpark, although doing so could be dangerous.

In terms of getting over $600 per year in sales, you're right that the new rules require reporting once you hit that level. However, I wouldn't be surprised if those rules get modified. The reporting burden seems like it could be significant, and I expect that there will be an outcry to raise that limit.

insidethewrapper · #6 09-02-2022, 01:35 PM

I have a set of baseball cards from 1962 ( 62 Topps) which was given to me as a birthday present in 1962. If I sell now , is my basis $ 0 ??? I never paid anything for them and they probably cost less than $20 back then.

raulus · #7 09-02-2022, 02:29 PM

Quote:

Originally Posted by insidethewrapper

I have a set of baseball cards from 1962 ( 62 Topps) which was given to me as a birthday present in 1962. If I sell now , is my basis $ 0 ??? I never paid anything for them and they probably cost less than $20 back then.

Gifts use carryover basis.

So whoever gave them to you probably had purchased them once upon a time. Their basis then transfers to you when they give you the gift.

Therefore, you're probably right that the basis is probably very low, because it's hard to imagine that the person who gave them to you spent very much on the items to begin with.

steve B · #8 09-02-2022, 11:01 AM

Quote:

Originally Posted by Stupe the Second Sacker

Makes sense guys...Thank you for the advice. It does raise the next question. How can you prove what else came in the lot?

And can you use reasonable value (average of recent sales) as a cost basis cards you don't have receipts for? Do you have translate those values to market value in the year you bought the card?

PS...What a nightmare for the casual seller.

When I was selling a lot on ebay, most of my stuff was inexpensive. And even my better items had cost me very little.

What we did was report it as a hobby business, and simply made our cost 0 paying tax on the full gross.
That was actually close enough to reality that the time spent on documenting the cost and profit for everything would have "cost" more than we paid.
And hobby businesses as far as I know can't claim losses.

Did I overpay on taxes? Yes, I sure did. Did I save hours of paperwork? Yes.

Stupe the Second Sacker · #9 09-02-2022, 11:37 AM

Quote:

Originally Posted by steve B

When I was selling a lot on ebay, most of my stuff was inexpensive. And even my better items had cost me very little.

What we did was report it as a hobby business, and simply made our cost 0 paying tax on the full gross.
That was actually close enough to reality that the time spent on documenting the cost and profit for everything would have "cost" more than we paid.
And hobby businesses as far as I know can't claim losses.

Did I overpay on taxes? Yes, I sure did. Did I save hours of paperwork? Yes.

I have a problem with that just on principle. My paycheck is being squeezed enough.

steve B · #10 09-06-2022, 09:43 AM

Quote:

Originally Posted by Stupe the Second Sacker

I have a problem with that just on principle. My paycheck is being squeezed enough.

What value do you place on your time?

For example, I bought a railroad china plate for 25 cents at a thrift store. It sold for over $600...(yes, really ) The time I would have had to spend to prove and back out that 25 cents from the profit would be way more than the few cents of tax saved.
Nearly everything I sold came from places that didn't provide a detailed reciept, or any reciept at all, like yard sales.

the time I would have spent doing the paperwork backing out what was often a couple dollars, or much less for stuff like postcards bought in a lot where each was maybe 5-10 cents was far better spent looking for more stuff, or just having fun.

raulus · #11 09-06-2022, 09:57 AM

Quote:

Originally Posted by steve B

What value do you place on your time?

For example, I bought a railroad china plate for 25 cents at a thrift store. It sold for over $600...(yes, really ) The time I would have had to spend to prove and back out that 25 cents from the profit would be way more than the few cents of tax saved.
Nearly everything I sold came from places that didn't provide a detailed reciept, or any reciept at all, like yard sales.

the time I would have spent doing the paperwork backing out what was often a couple dollars, or much less for stuff like postcards bought in a lot where each was maybe 5-10 cents was far better spent looking for more stuff, or just having fun.

Because who doesn't love to nerd out on tax stuff...I will observe that modern tax forms force you to round to the nearest dollar. So 25 cents is zero dollars. Even if you wanted to waste your time proving your 25 cent basis, it's as good as zero when it comes to calculating your gain.

Smarti5051 · #12 09-02-2022, 10:34 AM

Quote:

Originally Posted by ValKehl

Scott, I would think the IRS would be delighted if the person sold the Ruth and declared a cost basis of $10 on his tax return, thereby paying a significant amount of tax on his profit.

You are correct. I had it backwards. I shouldn't write responses 3 minutes after waking up. Better example. You sell the 999 1987 commons as a lot for $2 and claim a cost basis of $9990, then bundle that tax loss with other card sales with net gains to reduce income while holding the Ruth in your PC with the remaining cost basis of $10 (until you die and your heirs get the stepped-up basis). This may not end well if you are flagged for the audit.

I am going to stop typing before I give other stupid examples before the caffeine kicks in.

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