Ask the Expert: Calculating taxes on collectibles

If you sell items you’ve collected (toys, coins, stamps, etc.) and get a check in payment, is there a tax on that sale? Is there a dollar amount below which the sale is tax-free and doesn’t have to be reported? How do I figure out my cost of the items many years later?

If you made a profit on the sale, it’s taxable.

The tax reporting rules depend on whether you sold “collectibles” — items purchased as investments you hoped eventually to sell at a profit — or items that you owned for your personal use. (Did you or anyone else in your family play with those toys as children, for example?)

The sale of collectibles — at a profit or at a loss — must be reported on IRS Form 8949 and on Schedule D of your federal tax return.

The sale of personal items sold at a profit must be reported on Schedule 1 of your tax return. If you receive a Form 1099-K showing that the buyer reported the sale to the IRS, it’s prudent to report it on Schedule 1 even if there was no profit. (For information on how to report the money-losing sale of a personal item for which you received a 1099-K, see my column on the topic, dated Feb. 9.)

Of course you need to know your original cost and expenses to determine whether you had a profit or a loss!

There’s no set formula for determining original cost when you have no records. You’ll have to make a reasonable guess, based on research about their probable fair market value at the time they were purchased — and keep records of that research in case you’re audited.

The bottom line

There’s no dollar amount of profit on which the IRS generously waives taxes.

More information

bit.ly/IRSForm1099-K

bit.ly/44sQMBz