IRS tax question

[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.

[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 .