IRS tax question

[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.