Tens of millions of dollars swap hands every single year in garage sales. That is a substantial amount of money. Is that money taxed? More than likely, it is not taxed. Uncle Sam is typically not interested in your garage sale money. Here’s why.
Capital Gains from Garage Sales
When you sell personal items, like things that you have purchased for personal use, they rarely fall into the capital gains category. Personal items do not solely refer to the large things you purchase for personal use, like your truck or your boat. It also includes small things, like your old MP3 player or your well-worn collection of John Grisham novels.
If you could sell your old The West Wing DVD collection for more than what you purchased it for, would you need to report that as a capital gain? Capital gains represent the difference between the price you purchase the item at and the price you sold the item for.
You would need to be a marketing genius to turn a profit on the items in your garage sale. However, if you have a mint condition addition of Action Comics no.1 that you paid $0.10 for in 1938 and you sell at a garage sale for $3.2 million, then you are going to owe the IRS money. You would report the gain on federal form 1040 at Schedule D.
Garage Sales: Making a Loss
In the vast majority of cases, the selling price of items at a garage sale, no matter how precious they are to you, would not result in a gain that requires you to pay garage sale tax. This is true even if you have a substantial amount of cash in hand.
Although you, like tens of thousands of people who have a garage sale each year, will lose money on selling your everyday items, from the standpoint of federal income taxes, you do not have a loss. No matter how much you originally paid for your P90X workout program, when you sell it, you will likely get a lot less for it than you originally purchased it for.
What if instead, you use eBay, or Amazon? The same principles apply. If you sell an item for more than what you purchased it for, you are required to pay capital gains tax. If you sell it for less, you cannot claim that on your taxes.
Should You Give It to Charity?
If you weren’t able to sell those old Star Trek posters you collected in the 90s at your garage sale, you could throw them all away, take them all back into your home and store until your next garage sale, or give them to friends and family. None of these things are going to have tax consequences.
However, you could donate items to the charity of your choice. You may be able to claim a charitable deduction equal to the fair market value of what you have donated. Determining the fair market value of the items you are donating can be tricky. And there are federal, state, and local income tax rules that will impact the items you donate and items that are subject to sales tax. Talk with tax professionals before making any final tax-related decisions.
At Fusion CPA, we work with hobbyists, small business owners, and larger organizations to help them determine their tax liability and find ways to minimize taxes by making charitable donations and by deducting losses.
We can help you determine if your garage sale has tax consequences. Our team of experienced CPAs can help you identify financial planning, tax planning, and bookkeeping strategies to help you make the most out of your resources while you grow your wealth. We look forward to speaking with you.
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.