Hobby Items Sold at a Loss

[GC75]

I am planning to sell a sports card hobby collection for around $5,000.  Over the years, I paid significantly more for the items, lets say $7,000.  I know that I cannot claim a capital loss on a hobby.  Do I even have to display this on my tax return?  If so, Schedule D?

Thanks

[Bsch4477]

Beginning in 2018, the IRS doesn't allow you to deduct hobby expenses from hobby income. you must claim all hobby income and are not permitted to reduce that income by any expenses.  You would report that income as Other Income. 

[Critter-3]

The tax term "hobby income" refers to things you work at for a profit ... buying collectibles and then selling the collection may not be "hobby income" but more like stamp collecting.  If you bought them to make a profit in the future then it is reported on the Sch D where the loss could be deductible.  

[Anonymous_]

Completely irrespective of how the transaction is categorized, this taxpayer can certainly deduct the basis (price paid) from the selling price. 

The main issue is whether @GC75 can document that the cost basis was actually $7,000 (resulting in a loss, which would not be deductible if the property had been held for personal use).

[GC75]

Thanks!

• Collectibles were most certainly held for personal use, no motivation to hold and sell at a profit
• Decided to sell in order to downsize
• Cost basis records are available to substantiate what I paid

So assuming I can offset the $5,000 income with the $7,000 cost, thus showing a "loss".......do I even need to report this on a tax return?  If so, which form?

Thanks again to all

[Anonymous_]

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@GC75 wrote:

So assuming I can offset the $5,000 income with the $7,000 cost, thus showing a "loss".......do I even need to report this on a tax return?

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No, not if the item(s) were held for personal use unless you receive a tax reporting form.

[Bsch4477]

If a taxpayer receives income for an activity that they don’t carry out to make a profit, the expenses they pay for the activity are miscellaneous itemized deductions and can no longer be deducted. The taxpayer must still report the income they receive on Schedule 1, Form 1040, line 21.

In view of the above from the IRS, I don’t understand how the OP can deduct the expense of buying the cards from income assuming that the activity is a hobby.

[Anonymous_]

There is a marked and distinct difference between business expenses (such as rent, utilities, et al) and capital assets or inventory.

If the enterprise would otherwise be considered to be a business, then the cards would be merchandise and factored into the COGS calculation (and deducted). Even retailers selling marijuana (legal under state law but not under federal law) are allowed to deduct their COGS.

If the activity of collecting the cards does not rise to the level of a business, then the cards, themselves, are capital assets and their cost can be deducted from the selling price. If the cards were held strictly for personal use, then no loss could be recognized. However, if the cards were purchased and held for investment purposes, a capital loss would go into the netting process and could be recognized.

[Mike9241]

@Bsch4477 the TCJA disallowed most categories of itemized deductions subject to the 2% limitation. what @GC75 is asking about is the sale of collectibles, which are capital assets. so the sale gets reported on form 8949. however, the loss is not deductible.

[Anonymous_]

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@Mike9241 wrote:

.........the loss is not deductible.

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The loss is not deductible if bought and held for personal use rather than investment purposes (quite obviously, @GC75 would have to establish the latter).

[Opus 17]

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@Bsch4477 wrote:

If a taxpayer receives income for an activity that they don’t carry out to make a profit, the expenses they pay for the activity are miscellaneous itemized deductions and can no longer be deducted. The taxpayer must still report the income they receive on Schedule 1, Form 1040, line 21.

In view of the above from the IRS, I don’t understand how the OP can deduct the expense of buying the cards from income assuming that the activity is a hobby.

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This isn't ordinary income, it's capital income, because it results from the sale of tangible personal property.  As such, it is reported on schedule D, and the cost basis definitely comes into play.  If the selling price is less than the cost basis, there is a capital loss.  The loss is not deductible on sale of personal property, but neither are the proceeds taxable.

Selling expenses, as distinct from the capital gain or loss, would be things like eBay listing fees, credit card transaction fees, and postage and insurance to ship the cards to the buyers.  You are correct that those expenses are not deductible.