The sports card hobby has grown significantly over the past few years, in part due to the COVID-19 pandemic which forced former collectors to stay at home and gave them the opportunity to get out their collections and get back into the hobby. As a result, the hobby has taken off again with collectors trying to find autographed cards, short-print cards, refractors, numbered cards, or case hits. You may think the most difficult part is pulling one of these rare cards, but in reality, selling the card and reporting the sale may be the most difficult. Knowing the tax rules on how the gain or loss is treated and reported on your tax return can be the most challenging part of selling your collectible card.

Hobby, investment, or business?

The buying and selling of sports cards can be treated differently for federal tax purposes depending on the facts. In general, the activity may be treated as a personal/hobby activity, an investment activity, or a trade or business. How the activity is classified is important because it affects where income is reported, whether losses are deductible, and whether costs such as grading, marketplace fees, and shipping can reduce taxable income.

Online sales and inherited cards

If you sell cards using an online marketplace or payment processor, you may receive a Form 1099-K reporting your gross payments received. While you need this information to help prepare your tax return, you need to know the rules in order to determine your taxable income.

What about those cards that you inherited when a family member passed away? Did you know that those inherited cards generally receive a basis equal to the fair market value on the date of death of the family member and that can significantly impact the amount of the gain on the sale of the cards?

Proper tax compliance

While once seen as a kid’s hobby, buying and collecting sports cards has become popular for people of all ages. At AHP, we can help with navigating the complex rules around buying and selling sports cards to ensure you are complying with IRS reporting requirements. If you are one of the many collectors who have gotten back into the hobby and are buying and selling cards, please contact your AHP representative if you would like us to review your situation and ensure proper tax compliance.