Can I Legally Count My Trains as Capital Investments For Tax Purposes in the US?

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swhalen

New Member
Hi there,

I'm very new to this forum, so please let me know if I'm unwittingly breaking any rules by posting this.

I recently moved into an apartment with enough space to build my first HO scale layout. As soon as I realized that I could build a layout, I began a buying spree on eBay of any HO scale train that caught my eye, and, as I think you can imagine, ended up with way more trains that I could fit on my modest layout. I'm now faced with the prospect of selling many of these "surplus" trains at a major loss, and with cash not really growing on trees for me, I'm trying to determine if I can do anything tax-wise to help cushion my losses.

So here's the question: have any of you considered declaring your model trains as capital assets? If so, we would have to claim any gains made by selling them at a profit as capital gains, but we would also get to declare any losses as capital losses, which are able to be deducted from any taxes owed. I think that there is a plausible argument to be made that many model trains (now of course, there is some element of subjectivity here, and a lot depends on the brand and quality of the model) can be considered collector's items, which means that they could technically be considered as capital assets according to the following definition of a capital asset, according to Investopedia:

"Capital assets are significant pieces of property such as homes, cars, investment properties, stocks, bonds, and even collectibles or art."

Please let me know if any of you have experience with this issue. I think it could really help a lot of us modelers, given the sometimes overwhelming financial commitment that comes with this wonderful hobby.

Thanks in advance for your help!

S
 

timlange3

Member
I'm not a tax accountant, financial advisor, or any other legal type help. I would think you would need to have it appraised so it will satisfy the IRS rules. I suspect the appraisal will cost you more than any savings you could realize.
 

Sirfoldalot

Curse You, Red Baron!
Staff member
The worst that can happen is that your deduction is disallowed and that you would have to pay back the deduction plus IRS INTEREST on the amount of any refund.
There is no fraud attempted ..... the State would expect their cut of the Sales Taxes.

If you are going to do something such as this - apply for a Federal Tax ID and treat it as a business.
 

D&J RailRoad

Professor of HO
The IRS looks at it as a significant asset. What does significant mean? The IRS lists assets as stocks or bonds, coins, art, vehicles, etc. I know some stocks can be bought for $20 - $30. Model locomotives with sound costs more than that. IRS doesn't say if you can use the item until you sell it though so I would suppose that would be a moot point. Art can be looked at. Coins can be looked at and held in your hand for the pleasure of it. You can throw your money on the floor and roll around in it naked if you want then go and spend it. (that will make ya think twice about holding bills in your hand).
 

D&J RailRoad

Professor of HO
Short answer is NO, according to my wife the H&R Block preparer. Hobbies are not capital investment. If you treat it like a business as Sherrel suggested, you have to show a gain before you can declare a loss.
In that case of showing a gain, anything bought in the past few years would be of more value now with the inflation.
 

GuilfordRailman

Well-Known Member
Not sure how much an appraisal for these items would cost but in order to truly know if they are worth anything, you’ll definitely need an appraisal. As timlange3 stated, the cost of the appraisal is a factor in all this and something to consider. I suggest selling them online to cover some of your losses over trying to claim them as an “asset”.
 

swhalen

New Member
Thank you guys so much for your thoughtful and thorough replies. I had the opportunity to speak with a tax attorney in the meantime and he was able to confirm what a lot of you had said: that to be able to declare model trains as capital assets, I would have to start a company and keep rigorous purchase and sale records of the trains to be able to claim a capital loss on any investment. Tough!

I guess I'll just have to take the L here.

Thanks again for all your help!

S
 




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