When Doing a Trade

[BobC]

Originally Posted by Exhibitman

Bob, How do you value items that are unique or that have few known examples that haven't sold in a long time? I certainly can't rely on a single 2011 sale as a comparable. So I analogize to similar cards, but there is always that unknowable variable that only an auction result can establish. Case in point: someone recently tried to work with me on a rare card I had, but no matter what we tried we simply could not agree on a base value because the card never sells. I had a list of cards I thought were comparable but he disagreed. Ultimately, I was pleased to keep the card.

Adam,

You've hit on another huge obstacle when trying to report trades for tax purposes, what is something you got in trade actually worth? A huge part of the pain in the butt you sometimes have to deal with, and another big reason why most people don't report trades on their tax returns. There is no definitive answer in the tax code for this specific question/issue either.

In looking at other tax areas involving estimated FMV for possible guidance, if you donate property (clothing furniture, etc.) with no recognized FMV to charity, you would estimate and include that supposed FMV on your tax return for charitable deduction purposes. However, if for any single item you donate you claim a FMV of $5,000 or more, your are required to obtain a formal appraisal of the item being donated, in writing, by a qualified and licensed appraiser, or risk having the amount of your charitable contribution thrown out, or at least revised downward, by the IRS. This might be a reasonable way to determine what to do if reporting FMV of a card you trade for. If under $5,000, do your best guesstimate as to the FMV, and keep your notes and any evidence you used to come up with that FMV as part of your tax records. But for something worth over $5,000, you definitely try to get as much written corroborative evidence as possible, and maybe even try to find a third party appraiser, or other known "expert" in regards to card values, to offer up some written report to further substantiate your reported value.

Bottom line is, if your tax return included a trade transaction, the IRS would first have to pull your return for examination and audit before you'd need to provide them with anything. And the percentage of tax returns being audited annually is extremely small in recent years. Secondly, if you are unlucky enough to have your tax return pulled for audit, chances are the IRS agent you get assigned will likely know nothing about cards and their values, and they probably won't want to learn anything about them and bother with it either. So in all likelihood, if you can intelligently argue and show you made a reasonable estimate of a card's FMV, the agent will probably just sign off on whatever value you used on your return. Of course, you could also get assigned a real gung-ho agent who makes you go a lot farther to prove your estimate is correct, and thus the reason to compile and gather as much evidence as you can at the time you prepare your tax return, and retain it in case it becomes needed in future years.

Answers to tax questions aren't always simple black or white answers, but are very often multiple shades of gray.