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Like-Kind Trades/1031 Exchanges post-2017 Tax Overhaul - What do people do now?
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31 posts in this topic

I was recently Googling around about the tax implications of selling a costly piece of art to finance another one, and was surprised to discover that as part of the 2017 tax changes there was a provision that stopped allowing collectibles to utilize the 1031 Like-Kind Exchange law to trade art for art.

https://www.forbes.com/sites/forbesfinancecouncil/2018/06/04/the-art-of-the-tax-free-exchange/

As I understand it, this is how collectibles(artwork) are now meant to be taxed:

- You pay taxes on any profits from your base price, even if you are trading it for another item of equal value. 

Example: I buy a piece of art for $100 and keep it for a decade. Its value rises to $1000. I trade it for another piece of art by the same artist from the same book that is also worth $1000. Even though this is an exchange of two pieces of equal value, I am now expected to pay taxes on that $900 in gains.

This is in addition to what already existed:
- Collectibles do not have the benefit of long term capital gains, but are instead taxed at 28%. (UPDATED: Taxed at up to 28%, depending on your tax bracket.)
- You cannot declare losses against collectibles, but must pay taxes on profits. (UPDATED: It sounds like valuable artwork may be classified as a capital asset, in which case you can offset losses.)

Example: I bought two pieces of art for $1000 each. Piece A dropped to a value of $1, while piece B rose to a value of $1999. Together they are still worth the $2000 originally spent, but if I sold them both, I'd be expected to claim none of the losses on the piece dropping $999 in value, while I would be expected to pay 28% taxes on the $999 in gains, meaning my $2000 sale would only net me $1720.

So first off, am I reading all of this correctly? Are there any tax folks in the crowd that can confirm this is accurate?

And if so, what the heck does everyone do now that you can't sell art to offset new purchases without incurring tax liabilities? 

Are they no longer selling art? Are they only doing private trades? Are folks declaring themselves dealers and marking art as investments?

This seems like a huge change to the hobby that will stifle art swaps and upgrades.

The extreme example would be winning something off Heritage for $20k and then needing to sell $26k in art to cover the tax liability. (And if you sent Heritage the art to sell, this means you'd need a final price over $30k to offset Heritage premiums and taxes.)

Any thoughts?

-j
 

(NOTE: I updated this post based on comments below so as not to accidentally lead anyone astray if they didn't keep reading. Also, please remember this is a chat board and not a forum of tax professionals, so take it all with a grain of salt.)

Edited by RabidFerret
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10 hours ago, The Voord said:

If deals are done in private, why declare anything . . . who's to know?  I live in the UK, so don't profess to know how the American tax systems work.

The concern was much more about when cash is involved; for instance winning a piece on Heritage and then needing to sell things to pay for it.

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On 3/1/2019 at 11:34 PM, RabidFerret said:

I was recently Googling around about the tax implications of selling a costly piece of art to finance another one, and was surprised to discover that as part of the 2017 tax changes there was a provision that stopped allowing collectibles to utilize the 1031 Like-Kind Exchange law to trade art for art.

https://www.forbes.com/sites/forbesfinancecouncil/2018/06/04/the-art-of-the-tax-free-exchange/

As I understand it, this is how collectibles(artwork) are now meant to be taxed:

- You pay taxes on any profits from your base price, even if you are trading it for another item of equal value. 

Example: I buy a piece of art for $100 and keep it for a decade. Its value rises to $1000. I trade it for another piece of art by the same artist from the same book that is also worth $1000. Even though this is an exchange of two pieces of equal value, I am now expected to pay taxes on that $900 in gains.

This is in addition to what already existed:
- Collectibles do not have the benefit of long term capital gains, but are instead taxed at 28%.
- You cannot declare losses against collectibles, but must pay taxes on profits.

Example: I bought two pieces of art for $1000 each. Piece A dropped to a value of $1, while piece B rose to a value of $1999. Together they are still worth the $2000 originally spent, but if I sold them both, I'd be expected to claim none of the losses on the piece dropping $999 in value, while I would be expected to pay 28% taxes on the $999 in gains, meaning my $2000 sale would only net me $1720.

So first off, am I reading all of this correctly? Are there any tax folks in the crowd that can confirm this is accurate?

And if so, what the heck does everyone do now that you can't sell art to offset new purchases without incurring tax liabilities? 

Are they no longer selling art? Are they only doing private trades? Are folks declaring themselves dealers and marking art as investments?

This seems like a huge change to the hobby that will stifle art swaps and upgrades.

The extreme example would be winning something off Heritage for $20k and then needing to sell $26k in art to cover the tax liability. (And if you sent Heritage the art to sell, this means you'd need a final price over $30k to offset Heritage premiums and taxes.)

Any thoughts?

-j
 

I am not a CPA, though, I have an MBA in Accounting and am probably more familiar with the tax code than 95-98% of most non-accountants.  But, still - consultant your accountant to be sure.

Here's what I think I know:

First of all, the 28% tax rate is the *long-term* Federal collectibles capital gain rate.  So, first - long-term means bought and held for more than 1 year.  If you hold for less than a year, you are subject to the same rate as your ordinary income rate.  Second, the 28% tax is a maximum rate - if you are in a lower tax bracket than that, it is the lower rate that will apply (much as there are actually two tiers for qualified dividend and LT capital gains tax rates on securities depending on your income, which I only recently found out).  Third, people forget that you also have to pay state & local taxes on capital gains (both for collectibles and securities).  It seems like 99% of people seem to not realize this. :screwy: 

Regarding the deductibility of losses, if you held the collectible as a personal asset, losses are not deductible at all. However, if you held the collectible as a capital asset (investment), losses can definitely be netted against your collectibles capital gains (I am not sure if it can be deducted against other non-collectibles capital gains or up to the $3K limit against ordinary income - check with your accountant).  If you are buying big ticket items from auction houses, it's pretty easy to make the case that you are buying capital assets. 

 As for the 1031 exchange, yes, it is gone for collectibles. I know at least one prominent collector who never declared capital gains on his sales in the past, as his argument was that he was doing like-kind exchanges when he rolled that money into other art. The problem, of course, being that he didn't actually file the paperwork for a 1031 exchange when it was valid, so, that's not going to hold up under the scrutiny of an audit.  That said, most 1031 exchanges are when you sell an appreciated asset for cash (thus triggering a realization event for capital gains) and then use that cash to buy a like-kind asset (then file the paperwork so you can carry over your basis and defer the capital gains tax liability). 

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Now here's what I'm not sure about:  in the event of a straight trade deal where no money trades hands (e.g., I trade you a Miller Daredevil page for your Byrne X-Men page or I trade you a Michael Jordan rookie card for a Wayne Gretzky rookie card), I was always under the impression that this was a like-kind, non-cash exchange and no realization event occurred to trigger a capital gains tax liability.  Much as if you own a stock that gets bought out for the acquiring company's stock, your cost basis merely transfers over and no tax liability is triggered until you sell the stock you receive.  Now, I know that barter is taxable (e.g., if you repair my car in exchange for me clearing out your roof gutters, that's supposed to be reported as income for both of us), but, I thought that like-kind, non-cash exchanges were not taxable.

But, now I am reading online that people seem to think that, after the recent tax changes, it is taxable? If so, I think that is TERRIBLE tax policy. First, if I trade you a Miller Daredevli page for a Byrne X-Men page, seriously, the govt. can just sod off - philosophically, I don't see how it's any of their business to collect thousands of dollars of taxes (assuming a low cost basis on both) when no money changed hands and the items were substantially similar.  Generally speaking, in tax law, it requires the exchange of cash to trigger a tax liability (with the barter exception, though, that is not trading like-for-like).

Second, if I trade you a page for a page...what price are we using to ascertain our tax liability (since no cash actually changed hands)???  Let's say both of our cost bases are $5K for each page, and that FMV on each is $20K.  So...we each have to pay tax on $15K in gains for swapping the pages in our portfolio?  What if we just said they're worth $5K each?  What if we claimed they're worth $2K each and both took $3K capital losses??  It's just stupid, unfair and ultimately unenforceable in most cases. We should be dealing in reality - wait for cash to exchange hands. Regardless of what the law says, that *should* be the trigger to realize capital gains so you don't have this arbitrariness that I just described.  It would be wholly inconsistent if ABC company can buy XYZ company for billions of dollars in stock and not trigger a penny of capital gains tax liability but two friends can't swap one Miller-for-one Byrne page in an art portfolio without triggering $30K in combined capital gains. :screwy:    

I'll ask my accountant when I talk to him later this month to see if he knows. But, regardless of what he says, I don't see how it makes any sense to report gains on trades where no money is changing hands.  Make sure you report every penny that gets paid to you in an art deal if it hits your bank account - the first thing the IRS will do in an audit is go over all your inflows and make sure you have accounted for every cent of it.  But, a trade deal?  C'mon. So when my 13-year old self was trading Wade Boggs rookie cards for Cal Ripken rookie cards, I'm meant to have been filing a Schedule D on my parents' tax return? I don't care what the laws are, that is absolute effing nonsense and no one should comply with such stupidity. 

Finally, I'm sure everyone remembers the recent furore regarding the expansion of sales tax collection by the auction houses? Well, I did not realize until a year or two ago that, even before the legal ruling that opened up greater state sales tax collection, there are already laws on the books in many states saying that you have to pay a "use tax" when you buy something from out of state and don't get charged sales tax. So, if you live in California and were buying things from, say, ComicLink the past few years and not getting charged sales tax, you were meant to report this on your tax return and send in the CA state sales tax amount that you would have paid. Now, I'm sure that 99%+ of people had never even heard of this law, and that 99%+ of them wouldn't have complied with it even if they had.  Well, here's the kicker: it turns out a couple of prominent OA collectors (one of whom was the one who told me about this use tax) actually paid this tax on their out of state OA purchases! :whatthe:  I'm not going to name names (not even in private, so don't bother asking), but, one of them is a semi-regular participant in this Forum :hi:.  This just blew me away; I mean, seriously, the concept of voluntarily reporting your out of state purchases so that you can cut another check to the tax man...why is this tax even on the books; it must be the least complied-with law in America. 

Edited by delekkerste
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7 hours ago, vodou said:

I've always taken the more conservative approach and paid my taxes (capital gains) as I went along. However, I'll add that I saw this coming a long time ago (2010) and legitimately set myself up as a business to be able to take advantage of all available deductions and to net out losses. B

I looked into it myself a while back, but, until last year, the statutory corporate tax rate was higher than the long-term collectibles capital gain tax rate (though, that has changed).  I didn't see myself racking up enough deductions to make it worthwhile, as I didn't anticipate doing a ton of sales volume or going to a lot of out of town shows and such.  But, the kicker for me was that my accountant warned me that I'd have to pay self-employment tax if I did it this way, which was a dealbreaker for me.  

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41 minutes ago, delekkerste said:

But, the kicker for me was that my accountant warned me that I'd have to pay self-employment tax if I did it this way, which was a dealbreaker for me.  

This was the answer I just got this week as well.

1 hour ago, delekkerste said:

it's pretty easy to make the case that you are buying capital assets.

There might be a few other criteria the Feds would look at to classify as an investor (vs simply a collector) -- frequency of sales, length of hold, on display in home, etc.

50 minutes ago, delekkerste said:

the govt. can just sod off

Agreed. Non-cash trades are just heading into ludicrous territory.

 

Great info throughout this thread. I'm going to link this thread in the newb thread too.

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8 hours ago, delekkerste said:

Now here's what I'm not sure about:  in the event of a straight trade deal where no money trades hands (e.g., I trade you a Miller Daredevil page for your Byrne X-Men page or I trade you a Michael Jordan rookie card for a Wayne Gretzky rookie card), I was always under the impression that this was a like-kind, non-cash exchange and no realization event occurred to trigger a capital gains tax liability.  Much as if you own a stock that gets bought out for the acquiring company's stock, your cost basis merely transfers over and no tax liability is triggered until you sell the stock you receive.  Now, I know that barter is taxable (e.g., if you repair my car in exchange for me clearing out your roof gutters, that's supposed to be reported as income for both of us), but, I thought that like-kind, non-cash exchanges were not taxable.

But, now I am reading online that people seem to think that, after the recent tax changes, it is taxable? If so, I think that is TERRIBLE tax policy. First, if I trade you a Miller Daredevli page for a Byrne X-Men page, seriously, the govt. can just sod off - philosophically, I don't see how it's any of their business to collect thousands of dollars of taxes (assuming a low cost basis on both) when no money changed hands and the items were substantially similar.  Generally speaking, in tax law, it requires the exchange of cash to trigger a tax liability (with the barter exception, though, that is not trading like-for-like).

Second, if I trade you a page for a page...what price are we using to ascertain our tax liability (since no cash actually changed hands)???  Let's say both of our cost bases are $5K for each page, and that FMV on each is $20K.  So...we each have to pay tax on $15K in gains for swapping the pages in our portfolio?  What if we just said they're worth $5K each?  What if we claimed they're worth $2K each and both took $3K capital losses??  It's just stupid, unfair and ultimately unenforceable in most cases. We should be dealing in reality - wait for cash to exchange hands. Regardless of what the law says, that *should* be the trigger to realize capital gains so you don't have this arbitrariness that I just described.  It would be wholly inconsistent if ABC company can buy XYZ company for billions of dollars in stock and not trigger a penny of capital gains tax liability but two friends can't swap one Miller-for-one Byrne page in an art portfolio without triggering $30K in combined capital gains. :screwy:    

I'll ask my accountant when I talk to him later this month to see if he knows. But, regardless of what he says, I don't see how it makes any sense to report gains on trades where no money is changing hands.  Make sure you report every penny that gets paid to you in an art deal if it hits your bank account - the first thing the IRS will do in an audit is go over all your inflows and make sure you have accounted for every cent of it.  But, a trade deal?  C'mon. So when my 13-year old self was trading Wade Boggs rookie cards for Cal Ripken rookie cards, I'm meant to have been filing a Schedule D on my parents' tax return? I don't care what the laws are, that is absolute effing nonsense and no one should comply with such stupidity. 

Finally, I'm sure everyone remembers the recent furore regarding the expansion of sales tax collection by the auction houses? Well, I did not realize until a year or two ago that, even before the legal ruling that opened up greater state sales tax collection, there are already laws on the books in many states saying that you have to pay a "use tax" when you buy something from out of state and don't get charged sales tax. So, if you live in California and were buying things from, say, ComicLink the past few years and not getting charged sales tax, you were meant to report this on your tax return and send in the CA state sales tax amount that you would have paid. Now, I'm sure that 99%+ of people had never even heard of this law, and that 99%+ of them wouldn't have complied with it even if they had.  Well, here's the kicker: it turns out a couple of prominent OA collectors (one of whom was the one who told me about this use tax) actually paid this tax on their out of state OA purchases! :whatthe:  I'm not going to name names (not even in private, so don't bother asking), but, one of them is a semi-regular participant in this Forum :hi:.  This just blew me away; I mean, seriously, the concept of voluntarily reporting your out of state purchases so that you can cut another check to the tax man...why is this tax even on the books; it must be the least complied-with law in America. 

I may be a unicorn here but I was actually state-audited for use tax. I bought a 2500 dollar item from Australia that arrived via Fedex to Illinois back in 2003. I never heard of use tax. In 2005 after having moved to a different state I received a bill with fees and penalties for the tax. I paid it. 

 

edit: I should add that the presumed logic or spirit of use tax makes sense for random power cords purchased from Amazon, i.e., the local hardware store sells the same thing or near equivalent. This goes for most consumer items. Never understood how it should apply to antiques, original one-off artwork, etc. 

Edited by cstojano
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1 hour ago, cstojano said:

I may be a unicorn here but I was actually stated audited for use tax. I bought a 2500 dollar item from Australia that arrived via Fedex to Illinois back in 2003. I never heard of use tax. In 2005 after having moved to a different stated I received a bill with fees and penalties for the tax. I paid it. 

 

edit: I should add that the presumed logic or spirit of use tax makes sense for random power cords purchased from Amazon, i.e., the local hardware store sells the same thing or near equivalent. This goes for most consumer items. Never understood how it should apply to antique, original one-off artwork, etc. 

Simple answer: any event can be taxed. If it can be taxed, it will be. It doesn't have to be consumed, just used. You use it by looking at it. I'm in NJ, and it's a minor miracle they haven't taxed the air we breathe.

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8 hours ago, delekkerste said:

Regarding the deductibility of losses, if you held the collectible as a personal asset, losses are not deductible at all. However, if you held the collectible as a capital asset (investment), losses can definitely be netted against your collectibles capital gains (I am not sure if it can be deducted against other non-collectibles capital gains or up to the $3K limit against ordinary income - check with your accountant).  If you are buying big ticket items from auction houses, it's pretty easy to make the case that you are buying capital assets. 

This is a very helpful tidbit!

But it reminds me of another aspect of claiming a collectible as an investment - isn't there a stipulation that says in order to claim it as an investment you must be willing to sell it? I seem to recall a caveat that if you squat on a collectible indefinitely (and refuse to sell it even when profitable offers are made) that you are a collector, not an investor.

Theoretically at least, it seems like if you're a black hole and never sell, then you couldn't claim art as easily as an investment.

8 hours ago, delekkerste said:

 As for the 1031 exchange, yes, it is gone for collectibles. I know at least one prominent collector who never declared capital gains on his sales in the past, as his argument was that he was doing like-kind exchanges when he rolled that money into other art. The problem, of course, being that he didn't actually file the paperwork for a 1031 exchange when it was valid, so, that's not going to hold up under the scrutiny of an audit.  That said, most 1031 exchanges are when you sell an appreciated asset for cash (thus triggering a realization event for capital gains) and then use that cash to buy a like-kind asset (then file the paperwork so you can carry over your basis and defer the capital gains tax liability). 

"Triggering a realization event" is a great phrase:)

This goes back to my original concern - the ability to upgrade a piece or chase a grail that ends up on Heritage where trading is not an option and you are forced to include a cash step.

But your point about the paperwork is spot on (and somewhat hysterical) - I can't imagine most folks ever did that! So as far as life in the trenches, maybe nothing has changed if you didn't file the paperwork in the first place? 

8 hours ago, delekkerste said:

But, now I am reading online that people seem to think that, after the recent tax changes, it is taxable? If so, I think that is TERRIBLE tax policy. First, if I trade you a Miller Daredevli page for a Byrne X-Men page, seriously, the govt. can just sod off - philosophically, I don't see how it's any of their business to collect thousands of dollars of taxes (assuming a low cost basis on both) when no money changed hands and the items were substantially similar.  Generally speaking, in tax law, it requires the exchange of cash to trigger a tax liability (with the barter exception, though, that is not trading like-for-like).

There are lots of things that are terrible tax policy, but I don't think we're allowed to opt out because we don't agree with them :wink:

8 hours ago, delekkerste said:

Second, if I trade you a page for a page...what price are we using to ascertain our tax liability (since no cash actually changed hands)???  Let's say both of our cost bases are $5K for each page, and that FMV on each is $20K.  So...we each have to pay tax on $15K in gains for swapping the pages in our portfolio?  What if we just said they're worth $5K each?  What if we claimed they're worth $2K each and both took $3K capital losses??  It's just stupid, unfair and ultimately unenforceable in most cases. We should be dealing in reality - wait for cash to exchange hands. Regardless of what the law says, that *should* be the trigger to realize capital gains so you don't have this arbitrariness that I just described.  It would be wholly inconsistent if ABC company can buy XYZ company for billions of dollars in stock and not trigger a penny of capital gains tax liability but two friends can't swap one Miller-for-one Byrne page in an art portfolio without triggering $30K in combined capital gains. :screwy: 

There are a lot of stupid and unfair things in the tax policy that don't match up from one side of the room to the other.

The whole idea that like-kind exchanges applied to real estate and livestock is laser-focused and seems specifically lobbied for by those folks. Part of the argument against it applying to collectibles seemed to be that real estate and cows helped encourage commerce, whereas collectibles do not (which is absurd when you consider how many people Heritage employs). That same argument seemed to be why they don't allow offsetting losses.

Yet gambling does. You can go drop $10k in losses at a casino one night, then use that to offset $10k in gains the next night. So gambling is somehow something that helps the economy, but art collecting doesn't? Silly. 

In fact, I even talked to a friend yesterday asking whether one could argue that art collecting itself is a form of gambling:) Certainly seems as addictive...

8 hours ago, delekkerste said:

I'll ask my accountant when I talk to him later this month to see if he knows. But, regardless of what he says, I don't see how it makes any sense to report gains on trades where no money is changing hands.  Make sure you report every penny that gets paid to you in an art deal if it hits your bank account - the first thing the IRS will do in an audit is go over all your inflows and make sure you have accounted for every cent of it.  But, a trade deal?  C'mon. So when my 13-year old self was trading Wade Boggs rookie cards for Cal Ripken rookie cards, I'm meant to have been filing a Schedule D on my parents' tax return? I don't care what the laws are, that is absolute effing nonsense and no one should comply with such stupidity. 

Please ask and post as I'm sure your accountant is much better than my accountant:)

 

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13 hours ago, delekkerste said:

Finally, I'm sure everyone remembers the recent furore regarding the expansion of sales tax collection by the auction houses? Well, I did not realize until a year or two ago that, even before the legal ruling that opened up greater state sales tax collection, there are already laws on the books in many states saying that you have to pay a "use tax" when you buy something from out of state and don't get charged sales tax. So, if you live in California and were buying things from, say, ComicLink the past few years and not getting charged sales tax, you were meant to report this on your tax return and send in the CA state sales tax amount that you would have paid. Now, I'm sure that 99%+ of people had never even heard of this law, and that 99%+ of them wouldn't have complied with it even if they had.  Well, here's the kicker: it turns out a couple of prominent OA collectors (one of whom was the one who told me about this use tax) actually paid this tax on their out of state OA purchases! :whatthe:  I'm not going to name names (not even in private, so don't bother asking), but, one of them is a semi-regular participant in this Forum :hi:.  This just blew me away; I mean, seriously, the concept of voluntarily reporting your out of state purchases so that you can cut another check to the tax man...why is this tax even on the books; it must be the least complied-with law in America. 

Yes you need to pay the use tax in CA.  One of my friends bought a machine for his business at a professional convention in California.  He figured he paid taxes on it and bought it in the state.  The Tax Board went to him and said you bought this in CA but the company is out of state so you are delinquent in paying the use tax.  So he had to pay the use tax.  He wasn't even aware but the state knew he was delinquent.

Most out of state companies now collect the state tax for CA sales.  One year a few years ago I forgot to pay the use tax because I wasn't sent the card reminder with my code on it.  The Tax Board called me at my work and said I was delinquent.  I told them I didn't owe anything and they said I still had to fill out the forms.  So they have been pretty aggressive in finding out if you neglected to pay.  

Collectibles won't be carved out unless there was a big lobby giving a lot of money to the politicians to change this.  I don't see Heritage or the other auction houses doing this.  As someone pointed out above, I think the current political climate is unfavorable to anyone with any assets because the concept of success is demonized by the media.  The media and politicians are pushing the idea that you didn't earn any of this, you only have it due to taking advantage of others.  

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1 hour ago, delekkerste said:

This thread makes me sad. :sorry: 

Me as well, no lie I have been glum all day. I have stuff from 2+ decades ago with no paperwork saved. I was a teen when purchased. Selling will be a bath.

 

One point I'd like to confirm as there is a lot going on in this thread. If I sell 1 item for a profit of 1k and another item for a loss of 1k I cannot offset these for a net 0 profit? That is atrocious if so.

Edited by cstojano
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9 minutes ago, cstojano said:

One point I'd like to confirm as there is a lot going on in this thread. If I sell 1 item for a profit of 1k and another item for a loss of 1k I cannot offset these for a net 0 profit? That is atrocious if so.

Thankfully, you can offset the two. (thumbsu

Remember, none of this matters unless you get audited; I know guys who definitely know better that don't report any of it.  As my accountant says: if anything hits your bank account, you better have accounted for it on your tax returns.  Those are words to live by. 2c 

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3 hours ago, delekkerste said:

This thread makes me sad. :sorry: 

Yeah this has bummed me out all day too. I have a considerable modest collection compared to you all, but it’s one I’ve put together “upgrading.” I ask myself now, what’s the point? Or I think that maybe I should wrap up this circus especially as my toddlers are growing and new costs are arising. I’m small potatoes but this sure doesn’t feel like a hobby anymore.  

So, theoretically, if you get a freebie Jim Lee con sketch that is worth $250 on eBay, are you expected to pay tax on that because an event has been triggered?

 

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3 hours ago, delekkerste said:

This thread makes me sad. :sorry: 

 

1 minute ago, Jay Olie Espy said:

Yeah this has bummed me out all day too. I have a considerable modest collection compared to you all, but it’s one I’ve put together “upgrading.” I ask myself now, what’s the point? Or I think that maybe I should wrap up this circus especially as my toddlers are growing and new costs are arising. I’m small potatoes but this sure doesn’t feel like a hobby anymore.

I'm sorry if I bummed anyone out by starting this thread:( I certainly wasn't trying to...

I was simply hoping to understand the changes to the tax law and make sure I don't shoot myself in the foot.

Upgrading and trading are how I built my collection over the last 20 years and the last thing I want to do is accidentally stick myself with a costly tax bill because I swapped one piece for another without realizing the repercussions:(

 

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11 hours ago, RabidFerret said:

Upgrading and trading are how I built my collection over the last 20 years and the last thing I want to do is accidentally stick myself with a costly tax bill because I swapped one piece for another without realizing the repercussions:(

 

With this new tax greatly impacting the way people upgrade through trades... would fewer trades mean that there will be more competition for straight cash sells, driving up prices OR will it take the wind out of collectors sails, and the loss of the trading aspect of hobby slow down enthusiasm and drive prices down OR are the future prices unaffected by the trading tax all together?

Edited by gumbydarnit
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3 hours ago, gumbydarnit said:

With this new tax greatly impacting the way people upgrade through trades... would fewer trades mean that there will be more competition for straight cash sells, driving up prices OR will it take the wind out of collectors sails, and the loss of the trading aspect of hobby slow down enthusiasm and drive prices down OR are the future prices unaffected by the trading tax all together?

Nobody was reporting straight trade deals to the IRS before the tax law change and I don't think that's going to change. Even when outright sales-to-buy other art qualified for a 1031 exchange, I have yet to hear of anyone in the hobby who actually filed the paperwork and used a qualified escrow account to do so (and, thus, would be invalid in case of an audit).

There are many ways that people game the system so as not to have money hitting their bank accounts and providing an audit trail for the tax authorities (not going to air any of them publicly here). Some of these tactics may be in danger if the tax authorities ever decide that it's worth it to devote the manpower to crack down on this. But, going to a show and trading your Gil Kane page to a collector for a John Buscema page is never going to show up on anybody's radar unless you're committing other crimes and law enforcement is surveilling you, in which case you have a lot bigger problems. :whistle: 

I think the sales tax issue (ComicLink is now collecting in NY state :cry:), more than the like-kind exchange rule changes, is going to spur more private deals (both trading and purchasing).  Let's do the math:

Let's assume you have a $5K piece of art and that it's likely that someone would buy it at that price either privately (no sales tax) or at auction (sales tax).  At auction, if someone has a $5K budget for that piece and faces an 8.875% sales tax rate, they can bid up to $4592, which would net the consignor $4175 at a 10% effective commission rate.  That's a 16.5% spread between the private sale (no sales tax) and what you'd net at the lowest price auction house, all other things being equal.  Assuming no seller's commission and no BP rebate at Heritage, there's a 23.5% spread once you factor in sales tax for a NY buyer on top of the vig.  

That's not to say that the auction house can't often get a better price, and it also takes care of all the legwork.  But, factoring in sales tax on top of their fees now provides a much higher bar to clear than vs. the past. 

Edited by delekkerste
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1 hour ago, delekkerste said:

There are many ways that people game the system so as not to have money hitting their bank accounts and providing an audit trail for the tax authorities (not going to air any of them publicly here). Some of these tactics may be in danger if the tax authorities ever decide that it's worth it to devote the manpower to crack down on this. But, going to a show and trading your Gil Kane page to a collector for a John Buscema page is never going to show up on anybody's radar unless you're committing other crimes and law enforcement is surveilling you, in which case you have a lot bigger problems. :whistle:

Of course "they" could be watching the other guy lol

Just a reminder: PayPal is a bank account; sometimes I forget that when I'm asked to identify my bank assets for various reasons.

Anyway, just putting it out there as a favor to the hobby: I'm happy to receive in sales/use tax free NH and re-ship back out for cost of shipping. I have a street address (that can receive/sign 24/7) and a PO Box available. Unless it gets to be a pain, let's say a suggested gratuity of $5 per package would be appreciated and anybody that's interested can PM to discuss further...privately.

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