In This Article
- The 28% collectible tax rate and why trading cards pay more
- Hobby vs. business: the classification that changes everything
- How to report trading card sales (capital asset vs. inventory)
- 1099-K reporting: what platforms report to the IRS
- Grading decisions and tax implications
- Box breaks: tax treatment
- Card-for-card trades are taxable
- Gifts, inheritance, and other ways to receive cards
- Loss harvesting: the collectible advantage
- Estate planning for valuable collections
- S-Corp election for card dealers
- NJ-specific rules for card sellers
- Worked dollar example: NJ card dealer tax calculation
- Frequently asked questions
If you sell trading cards - sports cards, Pokemon, Magic: The Gathering, Yu-Gi-Oh!, One Piece TCG, or any collectible card - the IRS considers every sale a taxable event. Whether you're a casual collector selling a few cards on eBay or running a full-time reselling business on Whatnot, there are tax consequences. This guide covers every scenario.
The 28% Collectible Tax Rate: Why Trading Cards Pay More
Trading cards are classified as collectibles under IRC Section 408(m). This matters because long-term capital gains on collectibles are taxed at a maximum rate of 28% - not the standard 0%/15%/20% rates that apply to stocks, real estate, and most other capital assets.
| Asset Type | Long-Term Capital Gains Rate (2025-2026) |
|---|---|
| Stocks, ETFs, real estate | 0% / 15% / 20% (based on income) |
| Collectibles (trading cards, art, coins, antiques) | 28% maximum |
| Short-term gains (held 1 year or less) | Ordinary income rates (10%-37%) |
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. The 28% rate only kicks in for taxpayers in the 32% bracket and above.
NJ Treatment: New Jersey taxes all capital gains - including collectibles - as ordinary income at rates from 1.4% to 10.75%. NJ has no preferential capital gains rate for any asset class. There is no special 28% collectible rate for NJ purposes. NJ also does not allow capital loss carryforward - losses can only offset gains within the same tax year.
Hobby vs. Business: The Classification That Changes Everything
The IRS draws a sharp line between hobby collectors and business dealers. The classification determines how you report income, what deductions you can take, and whether you owe self-employment tax.
Hobby Collector (Most Casual Sellers)
- Report: Gains on Form 8949 / Schedule D as capital gains
- Holding period matters: Short-term (held 1 year or less) = ordinary rates; long-term (held > 1 year) = 28% collectible rate
- Losses: Capital losses, limited to $3,000/year against ordinary income with carryforward
- Expenses: NOT deductible (OBBBA made the TCJA suspension of hobby expense deductions permanent under IRC Section 67(h))
- Self-employment tax: None
- NJ: All gains at ordinary income rates; 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: Fully deductible as business losses (subject to excess business loss limits)
- Expenses: Fully deductible: shipping, packaging, grading fees, platform fees, travel to card shows, inventory storage, home office
- Self-employment tax: 15.3% on net profit (12.4% Social Security on first $184,500 for 2026 + 2.9% Medicare on all earnings)
- NJ: Category (b) net profits from business; NJ has no separate self-employment tax
The IRS 9-Factor Test (IRC Section 183)
The IRS uses these factors to determine if your card activity is a business or hobby:
- Manner carried on: Do you keep books, track inventory, use accounting software?
- Expertise: Have you studied the market, attended trade shows, developed expertise?
- Time and effort: Is this a significant time commitment?
- Expectation of appreciation: Do you research cards with appreciation potential?
- Success in similar activities: Have you run other successful businesses?
- Income and loss history: Profit in 3 of 5 years creates a presumption of business
- Occasional profits: Even one large profitable year supports business intent
- Financial status: Is this your primary income source?
- Elements of personal pleasure: Personal enjoyment doesn't automatically disqualify business status
Practical threshold: If you're buying and selling cards regularly with the intent to profit, keeping records, and treating it like a business, you're likely a business for tax purposes - even if you also enjoy collecting.
How to Report Trading Card Sales
Capital Asset (Hobby Collector)
- Calculate gain/loss: Sale price - (Purchase price + Grading fees + Shipping paid by you) = Gain/Loss
- Report each sale on Form 8949 (Box C for short-term, Box F for long-term)
- Carry totals to Schedule D
- Description: 'Trading Card - [Card Name] [Year] [Grade if applicable]'
Inventory (Business Dealer)
- Track all purchases as inventory (COGS)
- Report gross revenue on Schedule C, Line 1
- Report COGS on Schedule C, Line 4 (include card purchases, grading fees as part of COGS, shipping supplies)
- Report business expenses on Schedule C Lines 8-27 (platform fees, shipping labels, home office, travel to shows)
- Net profit flows to Schedule SE for self-employment tax
1099-K Reporting: What Platforms Report to the IRS
Under OBBBA Section 70432, the 1099-K reporting threshold is $20,000 in gross payments AND 200+ transactions (permanent, retroactive to TY2022). This applies to:
| Platform | 1099-K Issued? | Threshold | What's Reported |
|---|---|---|---|
| eBay | Yes | $20,000 + 200 transactions | Gross sales (before fees, returns) |
| Whatnot | Yes (via Stripe) | $20,000 + 200 transactions | Gross sale amount |
| Mercari | Yes | $20,000 + 200 transactions | Gross proceeds |
| COMC (Check Out My Cards) | Yes | $20,000 + 200 transactions | Gross sales |
| Facebook Marketplace | Yes (if using checkout) | $20,000 + 200 transactions | Gross payments |
| Card shows / cash sales | No | N/A | Self-reported |
Important: The 1099-K reports gross sales - it does not subtract platform fees, shipping, returns, or your cost of goods. Your taxable income is the gross amount minus all legitimate deductions and COGS.
NJ threshold: NJ has its own 1099-K threshold of $1,000 with no transaction minimum. NJ-based sellers may receive a state-triggered 1099-K even when the federal threshold is not met.
Grading Decisions and Tax Implications
Sending a card to PSA, BGS, CGC, or SGC for grading has tax implications:
- Grading fees are part of your cost basis. They increase your basis and reduce your taxable gain when you sell.
- For business dealers: Grading fees are COGS or a direct expense, deductible in the year incurred.
- For hobby collectors: Grading fees add to the card's cost basis, reducing capital gains at sale.
- Timing matters: A card graded in 2025 and sold in 2026 - the grading fee becomes part of 2026's gain calculation.
When NOT to Grade for Tax Purposes
If a card's expected sale price barely covers the grading fee, the tax deduction from the fee may be worth more than the incremental value. A $20 grading fee on a card worth $30 raw vs. $40 graded gives you $10 in incremental value but $20 in additional basis. Run the math before grading low-value inventory.
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:
- Your 'spot' purchase is your cost basis for whatever cards you receive
- Cards received have FMV at the time of receipt - but your cost basis is what you paid for the spot, not the FMV
- If you sell a card from a break: Gain = Sale price - (Spot cost allocated to that card)
- Allocation method: Allocate spot cost across all cards received, pro-rata by FMV at time of break
- Keeping cards: No taxable event until you sell. Your basis is the allocated portion of the spot cost
Box Break Operators
If you run box breaks as a business, the spot purchases from buyers are revenue on Schedule C. Your cost of the product (cases, boxes) is COGS. Platform fees (Whatnot, YouTube), shipping, and equipment are deductible expenses.
Card-for-Card Trades Are Taxable
Every card-for-card trade is a taxable exchange under IRC Section 1001. The 2017 Tax Cuts and Jobs Act eliminated like-kind exchange treatment (Section 1031) for all personal property - including collectibles. Only real property qualifies for 1031 exchanges.
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
| How Received | Your Basis | Holding Period |
|---|---|---|
| Purchased | Purchase price + fees | Starts at purchase date |
| Gift (FMV > donor's basis) | Donor's basis (carryover) | Donor's holding period tacks |
| Gift (FMV < donor's basis) | Dual basis rule: FMV for loss, donor's basis for gain | Starts at gift date for loss |
| Inherited | FMV at date of death (stepped-up basis) | Automatically long-term |
| Prize / giveaway | FMV at receipt (ordinary income) | Starts at receipt date |
| Box break | Allocated spot cost | Starts at break date |
Loss Harvesting: The Collectible Advantage
Trading cards offer a unique tax loss harvesting advantage that stocks and crypto don't: no wash sale rules apply to collectibles.
IRC Section 1091 wash sale rules apply only to 'stock or securities.' Trading cards are property, not securities. This means you can:
- Sell a card at a loss
- Immediately buy the same card back
- Claim the full loss on your tax return
This is the same advantage crypto investors have - and it's entirely legal for TY2025 under current law.
Estate Planning for Valuable Collections
High-value card collections deserve estate planning attention:
- Stepped-up basis at death (IRC Section 1014): Heirs receive cards at FMV on the date of death, eliminating all unrealized gains
- 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) pay 15-16% from the first dollar
- Qualified appraisals: Required for donations of collectibles valued at $5,000+ (Form 8283 Section B)
- Insurance documentation: Maintain current appraisals for insurance and estate purposes
S-Corp Election for Card Dealers
If your card dealing business nets more than $80,000-$100,000 per year, an S-Corp election can save significant self-employment tax. At $150,000 net profit with a $70,000 reasonable salary, annual SE tax savings are approximately $6,000-$8,000. NJ auto-recognizes federal S-Corp elections since P.L. 2022, c.133. See my S-Corp savings calculator.
NJ-Specific Rules for Card Sellers
- NJ GIT: All gains taxed at ordinary income rates (1.4%-10.75%). No preferential collectible rate
- No capital loss carryforward: Losses only offset gains in the same tax year. Excess losses disappear for NJ
- NJ estimated tax: Required if NJ tax owed exceeds $400. Safe harbor: 80% current year or 100% prior year (110% if prior-year gross income exceeds $150,000 per N.J.S.A. 54A:9-6(d)(3))
- NJ sales tax: NJ exempts casual or occasional sales from sales tax. Regular sellers may need to collect NJ's 6.625% sales tax
- 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.
Kevin's 2025 Card Activity
| Item | Amount |
|---|---|
| Gross card sales (eBay + Whatnot) | $82,000 |
| Cost of cards purchased (COGS) | $51,000 |
| Grading fees (PSA Value submissions) | $3,300 |
| Platform fees (eBay 13.25%, Whatnot 8%) | $8,600 |
| Shipping supplies and labels | $2,400 |
| Home office (simplified, 100 sq ft) | $1,500 |
| Card show travel and table fees | $1,800 |
| Net Schedule C profit | $13,400 |
Federal Return
| Line | Amount |
|---|---|
| W-2 wages | $95,000 |
| Schedule C net profit | $13,400 |
| Total income | $108,400 |
| Standard deduction | ($15,750) |
| QBI deduction (20% of $13,400) | ($2,680) |
| Taxable income | $89,970 |
| Federal income tax | ~$14,800 |
| SE tax on $13,400 (15.3%) | $1,892 |
| Total federal tax | ~$16,692 |
NJ Return
| Line | Amount |
|---|---|
| W-2 wages (NJ-1040 Line 15) | $95,000 |
| Net business profits (Line 17) | $13,400 |
| NJ gross income | $108,400 |
| NJ exemptions and deductions | ($3,000) |
| NJ taxable income | $105,400 |
| NJ GIT | ~$3,950 |
Without Proper Documentation
If Kevin failed to track his COGS, grading fees, and business expenses, his 1099-K would show $82,000 in gross sales. Without documentation to prove deductions, the IRS would treat the full $82,000 as taxable income. At the 24% bracket, that is an additional $16,464 in unnecessary federal tax - plus NJ tax on the phantom income. Proper record-keeping saved Kevin over $16,000.
2026 Comparison: 1099-K Threshold Change
Under the OBBBA (Section 70432), the 1099-K threshold is permanently restored to $20,000 and 200 transactions. Kevin's $82,000 in sales still triggers 1099-K reporting. But a smaller seller with $15,000 in gross sales and 150 transactions would NOT receive a 1099-K in 2026 - compared to the prior $600 threshold that would have triggered one. The income is still taxable regardless, but fewer sellers will face the IRS matching problem.
Frequently Asked Questions
Do I have to report card sales under $600?
Yes. All income is taxable under IRC Section 61 regardless of whether you receive a 1099-K or any other form. The $20,000/200-transaction threshold only determines when the platform must file the form, not when you owe tax.
Are Pokemon cards taxed differently than sports cards?
No. All trading cards - sports, Pokemon, Magic: The Gathering, Yu-Gi-Oh!, One Piece - are collectibles under IRC Section 408(m) and subject to the same 28% maximum long-term capital gains rate.
Can I deduct the cost of cards I keep in my personal collection?
No. Cards retained for personal use are not deductible. Only cards sold or used as business inventory create deductions. If you purchase a $500 card and keep it, there is no tax event until you sell it.
How do I value cards with no clear market price?
Use comparable recent sales from eBay completed listings, PWCC Marketplace, or 130point.com. For graded cards, PSA and BGS population reports help establish rarity-adjusted FMV. Document your valuation methodology.
I bought a card years ago and don't remember what I paid. What's my basis?
You must make a reasonable estimate. Check old eBay purchase history, credit card statements, or Beckett pricing guides from the approximate purchase year. If you truly cannot determine basis, consult a CPA before filing - claiming $0 basis means paying tax on the entire sale price.
Do I need to charge sales tax on card sales?
It depends on your state and volume. NJ exempts casual/occasional sales. If you sell regularly and meet economic nexus thresholds ($100,000 OR 200+ transactions in NJ), you likely need to register, collect, and remit NJ sales tax at 6.625%.
Where can I get help with trading card taxes?
I'm a NJ-licensed CPA with experience in collectible taxation, the 28% rate, hobby vs. business classification, and multi-platform 1099-K reconciliation. Schedule a free consultation.
Want to Make Sure You're Not Overpaying on Card Taxes?
Most card sellers overpay because they fail to track cost basis, grading fees, and platform fees - leaving thousands in deductions on the table. The 28% collectible rate makes proper documentation even more critical than it is for stock investors. I'm Greg Monaco, a NJ-licensed CPA (License #20CC04711400). Every return is prepared personally.
Schedule a free 30-minute consultation →
Related Articles
Related reading: Pokemon Card Taxes | Box Breaks Tax Guide | Loss Harvesting for Collectibles | Reseller Taxes | Whatnot Seller Taxes
Circular 230 Disclosure: This content is for informational purposes only and does not constitute tax advice. Pursuant to U.S. Treasury Regulations, any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code.
