Baseball cards have been around for more than 130 years. They might now be in their Golden Age. As cards attract higher prices, some collectors are reaping large gains. Those gains aren’t exempt from the long reaches of the Internal Revenue Service.
“We’re in the third inning, not the seventh or eighth inning, of a period of escalation and interest,” says Ken Goldin, founder of Goldin Auctions in New Jersey. Goldin estimates the upward trajectory of the card market began in 2016. It took a “steep” climb last year, followed by another high jump after the coronavirus pandemic struck in March.
Goldin uses the value of a signed Fernando Tatis, Jr. rookie card as an illustration. Before the pandemic began, Goldin estimates such a card was worth about $30,000. Yet in August it priced at $217,200. A month later it fetched bids of as high as $241,200.
Part of the price surge reflects Tatis’ career. The San Diego Padres shortstop finished third in National League Rookie of the Year voting in 2019, followed by a star-studded season in 2020.
But the marketplace has also changed, Goldin stresses. Collectors aren’t, as he put it, “flying to Vegas” and other destinations with the same frequency as before the pandemic. This leaves them with more disposable income and time.
Goldin also emphasizes that private equity and venture capital firms are increasingly interested in cards. This interest is driving prices up—and will continue to do so long after the pandemic ends. Cards attract those businesses, Goldin reasons, since they are long-established goods in the American economy and exist in a limited supply market.
Others in the sports collectibles industry agree. Jesse Craig, director of business development at PWCC Marketplace in Oregon, contends the baseball card market will remain high for a while. “There is so much more public awareness toward our industry as a viable tangible asset,” he reasons, “coupled with a lot of intelligent money and sophistication into the space. There are more analytics, more tools to research the market, more liquidity with lending and fractionalization, and the list goes on. All signs point to our market seeing substantial growth across the board in the coming years.”
Both Goldin and Craig stress that prices for other sports’ trading cards are similarly thriving. A 2018 National Treasures Luka Doncic Rookie Patch Auto /99 BGS recently sold through PWCC’s auctions for $230,100—Craig says, “You could have bought a similar card just 10 months prior for roughly $22,000.”
The tax treatment of baseball cards, like the tax treatment of many items, can be complex. Collecting baseball cards is often a hobby that sometimes functions as an investment—assuming the collector is ever willing to part with his or her prized possessions. Purchasing, say, a Ken Griffey, Jr. rookie card adds a cherished addition to one’s collection but also creates a tangible piece of property that can be bought and sold—much like a comic book, stamp, coin and other items that tend to attract collectors.
Cards are taxed at different rates based in part on whether they are held for more than a year (their tax treatment also depends on whether the collector is a hobbyist or in the business of buying and selling cards; our focus is on the former).
When a card is bought and sold for a profit within the same year, the profit is treated as ordinary income that simply augments the collector’s other sources of income, including wages. The total amount is then taxed at the applicable rate. Income tax brackets currently range from 10% to 37%. Should former Vice President Joe Biden become President, he intends to raise taxes on income in excess of $400,000, from 37% to 39.6%. Collectors should also be mindful of state taxes.
Holding onto the card for more than a year brings on a different tax treatment when the card is eventually sold. The card is considered a long-term capital asset and is taxed at a maximum 28% rate. Such a rate is higher than most types of capital gains, which are usually taxed at no higher than 15% and in some instances are taxed at 0%. As with other types of taxes, long-term capital gain taxes are subject to change should Biden become president and should Congress agree to Biden’s tax reforms. To that point, Biden intends to raise capital gain taxes for high-income earners.
How to avoid all these taxes? Just go old school and trade cards. If no money changes hand, then no taxes will apply.
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