\u201cI recently sold some old Magic the Gathering cards for a considerable sum of money. I know reddit is not the place to go for tax advice, but everybody there says this would count as a sale of of a \u2018collectible\u2019 whereas I\u2019m getting mixed answers from AI. I\u2019ve tried looking on the IRS website but cannot find any actual answers there. Please help!\u201d<\/p>\n<\/blockquote>\n
Firstly, let\u2019s provide some background for anybody not familiar with why this question matters. For the most part, long-term capital gains are taxed at favorable tax rates (i.e., tax rates lower than the ordinary income tax brackets). However,\u00a0long-term capital gains from the sale of collectibles are taxed at your ordinary income tax rate, subject to a 28% maximum rate. (That is, if you\u2019re in the 0-24% brackets, a long-term capital gain from the sale of collectibles would be taxed at your ordinary income tax rate, and if you\u2019re in the 32-37% tax bracket, a long-term capital gain from the sale of collectibles would be taxed at a 28% rate.)<\/p>\n
In other words, if you\u2019ve just sold something for a gain, you would prefer that it be something that doesn\u2019<\/em>t count as a collectible.<\/p>\n Most people would consider Magic the Gathering cards, Pokemon cards, baseball cards, etc. to be firmly within the colloquial definition of the word \u201ccollectible.\u201d People certainly have collections<\/em> of baseball cards, Magic cards, Pokemon cards, etc. The category of games that includes Magic and Pokemon is often even referred to as a \u201ccollectible card game.\u201d<\/p>\n And yet, what matters is not colloquial definitions but rather our tax law.<\/p>\n And the law itself points in the opposite direction. The relevant definition comes from IRC \u00a7 408(m)<\/a>, which states:<\/p>\n the term \u201ccollectible\u201d means:<\/p>\n In other words, it\u2019s a specific list of things. The wording is not that the term \u201ccollectible\u201d includes<\/em> those items (and therefore potentially includes other items as well). Rather, the wording is that \u201ccollectible\u201d means specifically the things on that list. And there\u2019s no broad catch-all statement. The closest thing to a catch-all is paragraph (F), which indicates that the Secretary has to specify<\/em> the property in question as a collectible.<\/p>\n So what\u00a0has<\/em> the Treasury Department specified as collectibles? Not very much, it turns out.<\/p>\n In a 1984 proposed regulation<\/a>, the Treasury stated that the term \u201ccollectible\u201d means:<\/p>\n (1) Any work or art, In other words, relative to the law itself, the proposed regulation added musical instruments and historical documents. But still no wording regarding trading cards or any number of other things that we\u2019d often refer to as collectibles. (Also, for what it\u2019s worth, that 1984 proposed regulation was never finalized.)<\/p>\n More recently, in 2023, the IRS specified<\/a> that NFTs (nonfungible tokens) would be considered collectibles if the underlying asset is itself a collectible. But that\u2019s not relevant here either.<\/p>\n I cannot find anything whatsoever indicating that the IRS has ever publicly indicated that trading cards are collectibles, even though that\u2019s what you\u2019d intuitively assume would be the case. They would be collectibles if you consider them to be works of art or historical objects, but that seems like a stretch in most cases.<\/p>\n In a 2023 letter to the IRS<\/a>, the New York State Bar Association stated:<\/p>\n We observe that under current law, section 408(m) may not apply to many tangible assets commonly understood as collectibles, including sports and trading cards, dolls and figurines, comic books, magazines, stuffed animals and video games. The policy arguments for extending section 408(m) to NFTs presumably apply with equal force to such tangible assets, which have been bought and sold for prices comparable to the prices commanded by the most sought-after NFTs. Yet although section 408(m)(2)(F) authorizes Treasury to identify additional categories of tangible collectibles, Treasury has never exercised that authority.<\/p>\n<\/blockquote>\n So if you sell something that we\u2019d typically think of<\/em> as a collectible, but which the law does not include in the definition of a collectible, reporting it as a sale of a collectible and paying the higher tax rate is probably the safest<\/em> thing to do, if you want to be 100% sure that you won\u2019t have your tax bill adjusted upward at a later date. But at the same time, the law says what it says. And filing a tax return that is in keeping with what the law says is generally a pretty reasonable thing to do.<\/p>\n Read the answers to this question and several other Social Security questions in my latest book:<\/p>\n\n
\n(B) <\/span>any rug or antique,
\n(C) <\/span>any metal or gem,
\n(D) <\/span>any stamp or coin,
\n(E) <\/span>any alcoholic beverage, or
\n(F) any other tangible personal property specified by the Secretary for purposes of this subsection.<\/div>\n<\/blockquote>\n\n
\n(2) Any rug or antique,
\n(3) Any metal or gem,
\n(4) Any stamp or coin,
\n(5) Any alcoholic beverage,
\n(6) Any musical instrument,
\n(7) Any historical objects (documents, clothes, etc.), or
\n(8) Any other tangible personal property which the Commissioner determines is a \u201ccollectible\u201d for purposes of this section.<\/p>\n<\/blockquote>\n\n
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