Need Federal Tax Advice Re: The Sale of Sports Collectibles

detroitfan2

Hi Folks,

I'll try to make this as short as possible. In 2005, I received payment for 3 items that were sold in a Leland's auction. I am looking for advice on how this income should be treated on my federal tax form. I've been to the IRS web-site and googled a few topics, but I'm afraid I could not find a definitive answer. No offense to anyone, but I'd like all advice to have some basis ( an official "tax code" or something that I can either see on-line or in a booklet).

Also, not sure it matters, but 2 of the items I owned for longer than 10 years, the other item was a partial 1955 Topps set that I put together over the years 2001-2004.

Finally, does anyone know if Turbo Tax is smart enough to handle this properly?

Thanks in advance for all response, and I apologize if this has been discussed on these boards before.

Peace,

Tom

Mac53

I'm not a tax expert, but it sounds like standard capital gains. The difference between what you sold them for (less fees, etc.) and what you bought them for is income probably subject to tax. If that's a lot of dough, it might be worth it to talk to a CPA.

dontippet

It definitely is subject to tax. You can either file a Schedule C for a business or you can file hobby income. I'm not exactly sure how to file hobby income, and I know that you can't deduct things in hobby income. TurboTax is smart enough, but, no offense to you, you have to be smart enough too. TurboTax will ask you the right questions, you need to know the right answers. I have never used TT for hobby income, but I have used it for Schedule C and it works fine. I hope this helps. Let me know if you have additional questions.

Don

larryallen73

If it's worth any money call a CPA. A few hundred bucks to the CPA could save you a bundle... plus save you a lot of time and trouble. Most CPA's earn their money, and then some, year after year. Good luck.

A761506

Did Leylands actually send you a 1099 (or other tax form) following the auction or in January? In other words, have they reported those specific sales to the IRS with your SS# or TAX ID associated with them?

This is a grey area in the tax code because it is going to be very difficult for you to document your original cost of the items. Theoretically you could make the claim that the 1955 partial set that you sold actually cost you more to purchase and assemble than you made from it. I wouldn't go so far as trying to write it off as a loss, as opposed to just a straight wash which would be less likely to subject you to an audit.

WinPitcher

What Josh said.


Steve

detroitfan2

Thanks everyone for the replies so far. Please keep them coming. I'm going to search for "hobby income" (I've been searching for "collectibles" so far and haven't found what I needed).

Also, Leland's did NOT send a 1099 nor any other tax info, but I don't think this means I don't need to report it.

Again, thanks for the replies and keep them coming.

-Tom

A761506

I think you're only opening yourself up to a potential problem by reporting it actually. Let's just say your proceeds from the auctions were $10,000 (which is petty as far as the IRS is concerned) and you had $7K into the items. You report as a $3K long term capital gain which costs you $450 in taxes. However, lets say you get audited for any reason, you may be asked to show proof of how much you paid for the items which were sold for the $10K. I don't know about you, but it would be extremely difficult for me to figure out how much it cost me for cards that I have owned for years and/or collated into sets piece by piece, and I certainly could not produce receipts for the vast majority of them, especially the ones I paid cash for at a show. If you were audited and could not prove your costs, you could be forced to claim a substantial portion of the $10K for capital gains, and they could even go so far as to hit you for short term gains.

Don't get me wrong, I'm not suggesting you should try to beat the IRS, but you're talking about hobby money which I equate to garage sale money. No one reports the income from a garage sale, and technically, it would probably be a net loss if they did. Unless you are a dealer and operate as a business for the purpose of making a profit, I do not think the IRS needs their hand in your hobby (assuming the proceeds from the sales was under $25K - I'd say once you hit that level on an annual basis, you've reached a level beyond a hobby). You already got clipped for a double-dip on the commissions (the seller always winds up paying the seller's commission directly and the buyers commission indirectly)... Do you really think it's necessary that you pony up an additional $450 on top of all that? Of course not, so you would claim that the cost of the items you sold was $10K, but now the burden of proof is on you if you're audited, and then your hobby just became an expensive headache.

rbdjr1

<< <i>Thanks everyone for the replies so far. Please keep them coming. I'm going to search for "hobby income" (I've been searching for "collectibles" so far and haven't found what I needed).

Also, Leland's did NOT send a 1099 nor any other tax info, but I don't think this means I don't need to report it.

Again, thanks for the replies and keep them coming.

-Tom >>



Hello Tom,

What is your cost basis for these (3) lots you auctioned?

Do you have receipts for your purchases over the years?

What were your allowable expenses and possible tax deductions over the years? i.e., maybe a percentage of your homeowner's premium all those years? storage in your home, bank, storage rental, etc.? plus you may be able to use some of the costs such as electric, security systems, safety deposit box, etc. use your imagination? maybe you can show transportation to and from varoius card shows (auto expenses, airline travel, ground transportation, even hotel stays, etc., and maybe even some meals?) even if you did not buy the items at the shows, you may possibly claim your "show visits" as possible allowable expenses and deductions, while searching for those items (in vein! LOL!)... maybe you can show the losses you incurred buying cards that were trimmed, damaged, or otherwise worthless card purchases, as you can just show those at a 100% loss, simular to a stock that became worthless, could offset another sold stock that went up? How about causalty losses, such as theft, water or smoke damage ,etc.

Tom, in other words you can report those items as sold, but you can be creative as to your actual cost basis. I'm not an accountant, but I have had over 2000 1099's in one tax year! And believe me, you think of every possible red cent, event, expense, deduction, that can offset your "cost basis".

I finish with this, be creative, but do file! If you get audited over three hobby sales, which I doubt will happen, just try to document as much of the "creative expenses and deductions" as possible.

After you subtract all your possible creative deductions, just reveal the "cost basis" and not give any details. Save those details for that 100 to 1 IRS audit long shot.

rbd

edit: Tom, maybe u can think of dozens of other possible tax deductible expenses such as postage, shipping, insurance ebay fees, auction fees, supplies (monster boxes, sleeves, card holders, etc., those numerous long distance telephone calls, plus all those Internet costs may be deductible (at least part of those monthly fees may be deductible?). Yes! And "tons more". Let the IRS come back to you and challenge all your deductions (which I doubt will ever happen!)?

detroitfan2

Once again, thanks everyone, very good advice. I think I've found my answer. The key term was "hobby income". From IRS Publication 17:

"If you collect stamps, coins, or other items as a hobby for recreation and pleasure, and you sell any of the items, your gain is taxable as a capital gain. However, if you sell items from your collection at a loss, you cannot deduct the loss."

Here are the details of my items:

(1) 1986 George Brett jersey, purchased at Sparky Anderson's CATCH auction in 1987, sat in my closet since. I have the original receipt for the purchase price, as well as Leland's documentation for the sale price (minus commissions). Other than gas money for the trip to the auction, that was about it in regards to expenses.

(2) Game used Dennis Rodman jersey, same story as the Brett jersey.

(3) 1955 Topps partial set, all PSA graded. Have ebay auction ids and a spreadsheet for every cent I spent on the set. Can obviously deduct my internet connection fees plus trip to see Chris Porter in TC, as A761506 says below, this one arguably was close to break even, although using strict buy/sell prices, I made about 20% or just under $1000.

I'm sure I'm stretching it here, but does anyone know the proper definition of "hobby income"? As detailed above, as 3 distinct items, I know my cost basis as well as my profit. However, for the year 2005, the amount I spent on my "hobby" was very close if not more than my profits from the above, so is it possible that I only have to report my net gains for the year?

The thing that kills me is that I can trade you $10,000 worth of my doubles for $10,000 worth of your doubles, and everything's fine, but if I sell my doubles to someone else for $10,000 and then pay you $10,000 for your doubles, then I owe income tax, even though in the end my "collection" is the same in both cases.

86DonrussGuy

Per IRS reg, the statutory tax rate on collectible capital gains (after all applicable netting) is a maximum 28% rate or the rate at which the gain would be taxed if it were ordinary income, if lower....pretty straight forward if your wife is a CPA

nam812

If only he had gotten that answer 17 years ago.

CW

@86DonrussGuy said:
Per IRS reg, the statutory tax rate on collectible capital gains (after all applicable netting) is a maximum 28% rate or the rate at which the gain would be taxed if it were ordinary income, if lower....pretty straight forward if your wife is a CPA

Well, it may have taken 17+ years, but at least Tom got his answer!

balco758

Roll the dice, long shot for any issue.
Then pay what you have to, less cost basis.

daltex

@detroitfan2 said:

The thing that kills me is that I can trade you $10,000 worth of my doubles for $10,000 worth of your doubles, and everything's fine, but if I sell my doubles to someone else for $10,000 and then pay you $10,000 for your doubles, then I owe income tax, even though in the end my "collection" is the same in both cases.

I don't think this is true, and I'd definitely talk to my tax professional before I tried to make that trade not taxable.

RonSportscards

"If you collect stamps, coins, or other items as a hobby for recreation and pleasure, and you sell any of the items, your gain is taxable as a capital gain. However, if you sell items from your collection at a loss, you cannot deduct the loss."

Is this for overall loss, or individual item loss.
For example, If I bought 3 item for $100 each, and sold 1 for $150 and 2 for $50, I'm overall -$50 so I can not deduct the overall loss.
OR....I can not deduct the loss of the 2 items, but must claim a gain on the 1 item I had a gain, even though I'm at an overall loss.

Jayman1982

@RonSportscards said:
"If you collect stamps, coins, or other items as a hobby for recreation and pleasure, and you sell any of the items, your gain is taxable as a capital gain. However, if you sell items from your collection at a loss, you cannot deduct the loss."

Is this for overall loss, or individual item loss.
For example, If I bought 3 item for $100 each, and sold 1 for $150 and 2 for $50, I'm overall -$50 so I can not deduct the overall loss.
OR....I can not deduct the loss of the 2 items, but must claim a gain on the 1 item I had a gain, even though I'm at an overall loss.

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Stay tuned in 2040 for the answer
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RonSportscards

@Jayman1982 said:

@RonSportscards said:
"If you collect stamps, coins, or other items as a hobby for recreation and pleasure, and you sell any of the items, your gain is taxable as a capital gain. However, if you sell items from your collection at a loss, you cannot deduct the loss."

Is this for overall loss, or individual item loss.
For example, If I bought 3 item for $100 each, and sold 1 for $150 and 2 for $50, I'm overall -$50 so I can not deduct the overall loss.
OR....I can not deduct the loss of the 2 items, but must claim a gain on the 1 item I had a gain, even though I'm at an overall loss.

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Stay tuned in 2040 for the answer
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Oops. LOL. I didn't even realize this thread is from 2006.
Oh well. Also noticed that the $600 sales threshold doesn't apply to 2022, so I'll ask the question again next year. LOL
I'm going to bed.

daltex

@RonSportscards said:
"If you collect stamps, coins, or other items as a hobby for recreation and pleasure, and you sell any of the items, your gain is taxable as a capital gain. However, if you sell items from your collection at a loss, you cannot deduct the loss."

Is this for overall loss, or individual item loss.
For example, If I bought 3 item for $100 each, and sold 1 for $150 and 2 for $50, I'm overall -$50 so I can not deduct the overall loss.
OR....I can not deduct the loss of the 2 items, but must claim a gain on the 1 item I had a gain, even though I'm at an overall loss.

Again: please, please don't take an answer from some clown on the Internet (including, maybe especially, me). Consult your tax professional.

detroitfan2

Just wanted to jump in and mention how extremely well written I feel the original post is . . .

nam812

@detroitfan2 said:
Just wanted to jump in and mention how extremely well written I feel the original post is . . ...

Really, he lost me at "Hi Folks"

RonSportscards

@daltex said:

@RonSportscards said:
"If you collect stamps, coins, or other items as a hobby for recreation and pleasure, and you sell any of the items, your gain is taxable as a capital gain. However, if you sell items from your collection at a loss, you cannot deduct the loss."

Is this for overall loss, or individual item loss.
For example, If I bought 3 item for $100 each, and sold 1 for $150 and 2 for $50, I'm overall -$50 so I can not deduct the overall loss.
OR....I can not deduct the loss of the 2 items, but must claim a gain on the 1 item I had a gain, even though I'm at an overall loss.

Again: please, please don't take an answer from some clown on the Internet (including, maybe especially, me). Consult your tax professional.

I consider any advice from wherever. I don't take it as gospel, just guidance for my own due diligence.
Besides, I spoke to a Jackson-Hewitt "tax professional" and the response was "I don't know" and I spoke to an H&R "tax professional" on a different matter, and I later learned I was given incorrect information.

softparade

Wait, you are just filing 2005 taxes now? lol J/K