Trading Card Taxes: A 2025-2026 Guide for Sports Cards, Pokemon, and TCG Collectors

Service boundary: Monaco CPA does not monitor holdings, recommend sales, repurchases, or timing, or provide loss-harvesting or investment strategy. Accepted work is limited to return reporting for completed transactions under a separate written scope.

Updated for the One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025) - Key 2026 changes: 1099-K restored to more than $20,000 and more than 200 transactions (OBBBA Section 70432), 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025 (transition rules apply to earlier acquisitions), Section 179 increased to $2,560,000. NJ still does not conform to federal bonus depreciation or QBI deduction.

In This Article

1. The Prevailing Practitioner Position and Potential 28% Collectibles Ceiling
2. Hobby vs. Business: How Classification Affects Reporting
3. How to Report Trading Card Sales
4. 1099-K Reporting: What Platforms Report to the IRS
5. Grading Decisions and Tax Implications
6. Box Breaks: Tax Treatment
7. Card-for-Card Trades Can Create Reportable Gain or Loss
8. Gifts, Inheritance, and Other Ways to Receive Cards
9. Section 1091 and Completed Card-Loss Reporting
10. Estate Planning for Valuable Collections
11. S-Corp Election for Card Dealers
12. NJ-Specific Rules for Card Sellers
13. Worked Example: NJ Card Dealer Tax Calculation
14. Frequently Asked Questions
15. Reporting Completed Trading-Card Transactions
16. Related Articles

Each trading-card sale requires gain-or-loss, basis, holding-period, and activity-classification analysis. A personal-use card sold below basis generally produces no taxable gain and a nondeductible personal loss; business inventory and investment or collectible property follow different rules. This guide applies the registry-settled prevailing practitioner position without turning it into a categorical classification of every card.

The Prevailing Practitioner Position and Potential 28% Collectibles Ceiling

The prevailing practitioner position generally treats trading cards as collectibles under IRC Section 408(m) (opens in a new tab). Section 408(m) does not expressly name trading cards, and no IRS or court ruling squarely classifies them, so this is not a categorical conclusion. If the position applies to the actual property, long-term gain can enter the maximum 28% framework.

A note on authority: Section 408(m)(2) defines "collectible" by listing works of art, rugs, antiques, metals, gems, stamps, coins, alcoholic beverages, and "any other tangible personal property specified by the Secretary." Section 408(m) does not expressly name trading cards, and no IRS or court ruling squarely classifies them. The prevailing practitioner position generally treats cards as collectibles, but this is not a categorical conclusion or settled classification of every card; the taxpayer and return preparer must evaluate the current authority and actual property.

The 28% rate is a ceiling, not a flat rate. If your ordinary income tax bracket is below 28% (e.g., the 24% bracket), your collectible gains are taxed at your ordinary rate. Whether any of your collectible gain actually reaches 28% is decided by the Schedule D Tax Worksheet, which stacks the gain on top of your other taxable income - so a large gain can straddle rates, and part of it can hit the 28% ceiling even when your ordinary income alone sits in a lower bracket.

NJ Treatment: Establish the card's supported adjusted basis and actual property and activity classification. An investment or capital-property disposition can enter New Jersey's net-gains-from-disposition-of-property category; dealer inventory instead follows the applicable net-profits-from-business, inventory, and COGS rules. Within the applicable category, supported same-year gains and losses are netted to a zero floor, with no cross-category offset or loss carryforward. Any positive category amount enters New Jersey's ordinary rate schedule, which ranges from 1.4% to 10.75% as part of the complete return; NJ has no preferential capital-gains rate or special 28% collectible rate.

Hobby vs. Business: How Classification Affects Reporting

Activity and property classification affect the reporting form, treatment of supported costs and losses, and whether self-employment tax applies.

Hobby Collector

• Report: Gains from cards held as capital property generally use Form 8949 and Schedule D; personal-use, investment, and other facts still control
• Holding period matters: Short-term capital gain uses the applicable ordinary-rate framework; if the prevailing practitioner collectibles position applies, long-term gain can enter the 28% maximum-rate framework
• Losses: Classification comes first. A loss on cards held for PERSONAL USE (enjoyment of the collection) is generally nondeductible under IRC Section 165(c). Losses on cards genuinely held for investment enter capital-loss netting; the ordinary-income offset is the smaller of the net capital loss or $3,000 ($1,500 MFS), with unused loss carrying forward and character preserved. Dealer inventory instead follows the applicable ordinary business, inventory, COGS, and business-loss limitation rules
• Expenses: NOT deductible as hobby operating expenses (OBBBA Section 70110 made the TCJA disallowance permanent and redesignated it as IRC Section 67(h)). Basis and selling costs are still subtracted in computing gain on a sale - they are not "deductions" barred by Section 67(h).
• Self-employment tax: A nonbusiness collector's capital gain is not self-employment income; separately determine whether the activity is a trade or business
• NJ: Taxable net gains at ordinary income rates, netted within the category with a floor of zero; no capital loss carryforward

Business Dealer (Active Resellers)

• Report: Revenue on Schedule C, Line 1; COGS on Line 4; expenses on Lines 8-27
• Holding period: Irrelevant - all inventory sales are ordinary income
• Losses: A substantiated Schedule C net loss may offset other income only after applying at-risk, passive-activity, excess-business-loss, and other return-level limits; a disallowed excess or remaining net loss can enter the applicable carryforward or net-operating-loss rules rather than produce an unrestricted current deduction
• Expenses: Ordinary and necessary seller expenses are deductible only to the extent substantiated and properly timed. Inventory, grading, packaging included with goods, and other direct costs may enter inventory or COGS; travel, meals, vehicles, and home-office costs have separate Section 274 and 280A limits and records. Grading costs for cards still held at year-end generally remain in inventory basis rather than becoming a current expense
• Self-employment tax: Schedule C profit generally receives the 92.35% Schedule SE adjustment; the resulting net earnings are subject to 12.4% Social Security up to the remaining 2026 wage base of $184,500 and 2.9% Medicare without that cap
• NJ: Category (b) net profits from business; NJ has no separate self-employment tax

The IRC Section 183 Profit-Motive Inquiry

IRC Section 183 applies nine non-exclusive factors to whether an activity is engaged in for profit. No factor or numerical majority controls, and the inquiry does not by itself establish a Section 162 trade or business or Schedule C treatment:

1. Manner carried on: Do you keep books, track inventory, use accounting software?
2. Expertise: Have you studied the market, attended trade shows, developed expertise?
3. Time and effort: Is this a significant time commitment?
4. Expectation of appreciation: Do you research cards with appreciation potential?
5. Success in similar activities: Have you run other successful businesses?
6. Income and loss history: Profit and loss patterns are relevant; separately, gross income exceeding attributable deductions in 3 of 5 consecutive years creates a rebuttable presumption only that the activity is engaged in for profit
7. Amount of occasional profits: The amount and frequency of profits, any losses, and the investment involved are relevant facts rather than a standalone result
8. Financial status: Substantial income from other sources and whether losses create tax benefits are relevant to the full inquiry
9. Elements of personal pleasure: Personal enjoyment doesn't automatically disqualify business status

The 3-of-5 rule is not a safe harbor. Failing it creates no contrary hobby presumption, and meeting it does not automatically establish trade-or-business status or Schedule C treatment. Buying and selling regularly, profit intent, organized records, and operational changes are relevant facts; enjoyment alone does not determine the result.

How to Report Trading Card Sales

Capital Property

1. Compute gain or loss from amount realized and adjusted basis. Supported acquisition costs, disposition costs, grading costs, and other adjustments require separate classification; personal-use and investment property can produce different loss treatment
2. Report a transaction on Form 8949 when required, using the holding-period and information-reporting box supported by the actual form and current instructions rather than assuming Box C or F in every case
3. Carry the applicable totals to Schedule D
4. Description: 'Trading Card - [Card Name] [Year] [Grade if applicable]'

Inventory (Business Dealer)

1. Account for property held for sale under the taxpayer's applicable inventory, cost-of-goods-sold, capitalization, and accounting-method rules
2. Report qualifying gross business receipts on Schedule C, Line 1
3. Report COGS on Schedule C, Line 4 only for costs properly included under the adopted method; card purchases, grading, packaging, and shipping items do not all receive one automatic timing or classification
4. Classify substantiated ordinary and necessary business expenses on the applicable Schedule C lines and apply the separate business-use, Section 274, Section 280A, capitalization, and timing rules
5. Qualifying Schedule C profit generally enters the Schedule SE net-earnings computation; the 92.35% adjustment, wage-base interaction, and applicable Medicare rules determine the tax

1099-K Reporting: What Platforms Report to the IRS

Under OBBBA Section 70432, the federal mandatory Form 1099-K threshold of more than $20,000 in gross payments AND more than 200 transactions applies to qualifying third-party-network (TPSO) transactions. Payment-card merchant acquirers have no federal de-minimis threshold, and an issuer may furnish below an ordinary threshold. The actual payment flow and issuer control:

Important: A furnished Form 1099-K reports the gross amount of covered payment transactions for the actual issuer and payment flow. It does not by itself establish gross sales, revenue, or profit, and it does not subtract platform fees, shipping, returns, or cost of goods. Reconcile the form to the underlying transactions first. What may then be subtracted depends on the classification above: a business dealer accounts for COGS and allowable business expenses on Schedule C, while a hobby or investment seller reports each required sale using basis and selling costs on Form 8949, with hobby operating expenses nondeductible and personal-use losses disallowed.

NJ filing rule: NJ-WT generally requires a payer to provide the Division with a state copy of a covered Form 1099 when the amount paid or credited is $1,000 or more or NJ income tax was withheld. That payer duty neither replaces the federal Form 1099-K issuer rules nor guarantees a separate recipient form. Reconcile any form actually furnished to the platform and sales records.

Grading Decisions and Tax Implications

A grading payment can affect basis, inventory, COGS, or another cost computation depending on the property, activity, accounting method, connection to acquisition or disposition, and timing:

• Classification first: Establish whether the card is personal-use, investment, inventory, or other property and whether the supported grading payment is an acquisition, improvement, production, inventory, selling, or other cost under the applicable rules.
• For business dealers: The adopted accounting and inventory method, capitalization rules, direct-cost connection, and sale timing determine whether and when a grading payment enters inventory, COGS, or another business-cost line.
• For collectors: A supported grading payment may enter adjusted basis when the applicable capitalization and property rules require it; the collector label alone does not establish the result.
• Timing matters: Recovery follows the applicable basis, capitalization, inventory, disposition, and accounting-method rules rather than the grading year alone.

Illustrative Grading-Cost Computation

For this arithmetic only, assume the $20 grading fee is properly capitalized to the sold capital asset and the Schedule D Tax Worksheet produces a 28% marginal rate on the affected collectible gain. The $5.60 is an isolated maximum-rate difference, not the tax on a complete return.

Assume, only for a completed-sale reporting illustration, a $20 grading fee, a $30 ungraded value, and a $40 graded sale price. The fee adds $20 to basis, and 28% applied to that isolated basis difference is $5.60 before the rest of the return. This is not a recommendation to grade, hold, or sell a card and does not promise a result.

Box Breaks: Tax Treatment

Box breaks - where multiple buyers purchase 'spots' (usually representing specific teams) and a case or box is opened live - create several tax issues:

• Start with the break contract: what legal and beneficial rights does the spot buy - a share of specific property, a chance at property, or something else? The buyer's rights, the consideration, what is actually received and accepted, and the buyer's capacity (collector, investor, or dealer) frame everything below
• Where the facts establish one lump-sum purchase of multiple cards, the spot price is the total cost to allocate among the cards received; receipt-time FMV is evidence of relative value, not itself basis
• If you sell a card from a break: Gain = Sale price - (the supported cost allocated to that card)
• Allocation method: allocate the supported total cost among the received cards using a reasonable, consistently documented method - relative FMV is often supportable, but no single method is mandatory
• Keeping cards: retention ordinarily defers gain from a later sale, but it does not by itself rule out every other possible event (for example, a receipt that the facts characterize as compensation, prize, or promotion is analyzed separately). Your basis is the supported allocated cost

Box Break Operators

If the facts establish a box-break trade or business, buyer receipts generally enter Schedule C. Product costs such as cases and boxes can enter inventory and COGS, while supported platform, shipping, and equipment costs require the applicable Section 162, capitalization, depreciation, inventory, and timing analysis.

Card-for-Card Trades Can Create Reportable Gain or Loss

A card-for-card trade is an exchange under IRC Section 1001 (opens in a new tab), requiring amount-realized, basis, character, and gain-or-loss analysis. Personal-use loss, related-party, business-inventory, and other rules can affect the return result. The 2017 Tax Cuts and Jobs Act limited Section 1031 like-kind exchange treatment to real property, so that provision does not defer a trading-card exchange.

Example: You trade a $500 card (basis $200) for another collector's $500 card. You realize a $300 gain on the trade - even though no cash changed hands. Your basis in the new card is $500 (FMV at time of trade).

Gifts, Inheritance, and Other Ways to Receive Cards

Section 1091 and Completed Card-Loss Reporting

For completed trading-card transactions, IRC Section 1091 does not itself impose the stock wash-sale disallowance because the statute applies to stock or securities.

IRC Section 1091 (opens in a new tab) applies only to stock or securities. Reporting a completed card-loss sale and any separate acquisition requires these facts:

1. The completed sale date, proceeds, substantiated basis, and holding period
2. Any separate acquisition date and price, which generally start a new basis and holding period
3. Whether personal-use, related-party, economic-substance, or capital-loss rules limit the realized loss

A later acquisition does not cause disallowance solely under Section 1091, but that fact does not establish deductibility or a universal legality conclusion. Monaco CPA does not identify cards to sell or recommend a sale, repurchase, or transaction date.

Estate Planning for Valuable Collections

High-value card collections deserve estate planning attention:

• Basis adjustment at death (IRC Section 1014 (opens in a new tab)): Inherited cards generally use the applicable estate-tax value, often date-of-death fair market value or an alternate value when validly elected. Income-in-respect-of-a-decedent, carryover-basis, valuation-election, and other special rules can produce a different basis, so no blanket gain, loss, or tax outcome follows from the inheritance label
• NJ Inheritance Tax: Class A beneficiaries (spouse, children) are exempt. Class C (siblings) pay 11-16% above $25,000 exemption. Class D (friends, non-relatives): a beneficiary share below $500 owes no tax, but once a share reaches $500 the entire share is taxable - 15% through $700,000 and 16% on the excess (NJ rate table (opens in a new tab))
• Qualified appraisals: Required when the claimed deduction for a donated item (or group of similar items) exceeds $5,000 - reported on Form 8283, Section B. Form 8283 itself is required once total noncash deductions exceed $500; Section A covers items over $500 through $5,000 (no appraisal), and Section B with a qualified appraisal applies above $5,000 per item or group.
• Insurance documentation: Maintain current appraisals for insurance and estate purposes

Monaco CPA does not provide estate planning or estate-accounting services. Collection owners should take transfer-at-death and document-structure questions to an independent estate-planning attorney and tax professional whose practice covers that work.

S-Corp Election for Card Dealers

There is no universal profit threshold at which an S-Corp election benefits a card dealer. As an isolated payroll-tax illustration with no other wages, $150,000 of Schedule C profit produces about $21,194 of regular SE tax, while a hypothetical $70,000 salary assumption produces $10,710 of combined employee-and-employer FICA, a $10,484 gross payroll-tax difference, not net savings. A full-return model must include reasonable compensation, QBI, retirement contributions, unemployment taxes, employer deductions, NJ taxes and BAIT if applicable, compliance costs, and other wages. The statute applies to privilege periods beginning after December 22, 2022; for calendar-year taxpayers, that means January 1, 2023. NJ procedural FAQ/TB-105 also describe the rule as on or after December 22, 2022; unusual short periods beginning Dec. 22 need Division confirmation. DORES registration, federal approval proof, Shareholder Jurisdictional Consent, timely CBT-100S filing, and earlier-period relief remain separate matters. See the S-Corp calculator for a starting model.

NJ-Specific Rules for Card Sellers

• NJ GIT: Taxable net gains included in the applicable New Jersey category enter the ordinary rate schedule (1.4%-10.75%); no preferential collectible rate applies
• No capital loss carryforward: Within the applicable New Jersey category, supported same-year losses can offset gains only to a zero floor; there is no cross-category offset or carryforward of the excess
• NJ estimated tax: Generally applies if expected NJ tax due after withholding and credits exceeds $400. Current Form NJ-2210 computes underpayment interest from the smaller of 80% of current-year tax or 100% of prior-year tax; the Division's separate high-income notice explains the statutory 110% exception and the operative 100%-prior/80%-current interest computation
• NJ sales tax: A sale qualifies for New Jersey's casual-sale exemption only when the statutory and regulatory conditions are met. Seller status, nexus, sales channel, marketplace-facilitator collection, sourcing, product, exemption facts, registration timing, and current law determine any collection duty at the 6.625% general rate
• NJ Section 179: $25,000 cap (vs. $2,560,000 federal). NJ does not allow bonus depreciation

Worked Example: NJ Card Dealer Tax Calculation

Meet Kevin, a NJ resident who runs a trading card reselling business on eBay and Whatnot while working a full-time job earning $95,000.

For this isolated illustration, assume Kevin is single and under age 65; his $95,000 of W-2 wages and the stated card activity are his only income; $82,000 is properly reconciled business gross receipts; and $51,000 is cost of goods sold computed after beginning inventory, purchases, and ending inventory. Also assume the grading fees, platform fees, shipping supplies and labels, and card-show travel and table fees are substantiated, allowable, correctly classified, and properly timed; the 100-square-foot home office qualifies for the simplified method and its gross-income limit is nonbinding; the stated QBI and New Jersey treatments apply; and there are no other adjustments, deductions, credits, taxes, or payments. The displayed federal amounts isolate federal income tax and self-employment tax, and the New Jersey amount isolates GIT, before withholding, payments, credits, and other complete-return items.

Kevin's 2025 Card Activity

Home-office note: The simplified method is $5 per square foot of qualifying home-office space, capped at 300 square feet (IRS simplified option (opens in a new tab)). 100 square feet therefore yields $500, not $1,500 - the $1,500 figure is the maximum deduction at the full 300-square-foot cap.

Federal Return

NJ Return

If Claimed Costs Are Not Substantiated

If Kevin failed to track his COGS, grading fees, and business expenses, his $82,000 1099-K gross would not substantiate the offsets claimed on Schedule C. The resulting adjustment could increase income tax, SE tax, and NJ tax; the amount cannot be computed by multiplying the unsupported deductions by one marginal rate because the Schedule SE adjustment, Social Security wage-base interaction, QBI, and progressive brackets all change. Proper records establish the COGS and expenses rather than promising a fixed dollar saving.

Records support the amounts claimed; property and activity character, timing, accounting method, and applicable limitations determine whether and when an amount is recovered through COGS or an expense.

2026 Comparison: 1099-K Threshold Change

Under OBBBA Section 70432, a TPSO's ordinary mandatory threshold is more than $20,000 and more than 200 transactions. Kevin's $82,000 of sales and another seller's $15,000/150-transaction facts do not alone promise a form outcome: payment-card merchant acquirers have no federal de-minimis threshold, a TPSO may furnish below its mandatory threshold, and issuer/payment-flow facts control. Income reporting and return reconciliation apply whether or not a form is furnished.

Frequently Asked Questions

Under an accepted written scope, Monaco CPA may review return reporting for completed collectible transactions, the 28% ceiling, hobby-versus-business classification, and actual Form 1099-K reconciliation. Use the contact form to request an intake review. Accepted work does not include holdings monitoring, trade recommendations, timing advice, or loss-harvesting strategy.

Reporting Completed Trading-Card Transactions

Completed card-sale reporting depends on substantiated basis, grading fees, platform fees, holding period, classification, and the applicable collectible-rate ceiling. I'm Greg Monaco, a NJ-licensed CPA. Greg is the sole practitioner and personally reviews, approves, and signs accepted client-facing work. Monaco CPA does not recommend trades or promise a tax result.

Use the contact form to request an intake review

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Disclaimer: This content is for informational purposes only and does not constitute tax advice. Written tax advice from a Circular 230 practitioner is governed by 31 C.F.R. §10.37; Treasury’s 2014 final regulations eliminated the former “covered opinion” rules and their mandatory disclaimer legend, so no such legend appears here. Tax laws change frequently; consult a licensed CPA about your specific facts.