Garage Sale Tax: What You Have To Report To The IRS
Springtime brings with it a sense of renewal and revitalization. If you are like many homeowners, you do a spring cleaning and get rid of things that are cluttering your home. Some people throw these excess items away. However, savvy people may have a garage sale to make a few dollars in profit off of the items they no longer need or use. You may think that with online options, like eBay, Amazon, and Craigslist, people don’t sell their possessions in garage sales anymore. However, you would be wrong. Garage sales take in tens of millions of dollars in revenue every single year. If you just had a garage sale and your nosy neighbor told you that you needed to pay a garage sale tax on the profit you made, should you listen to them? Will the IRS come after you for your garage sale money?
To Pay Tax or Not to Pay Tax, That Is the QuestionaDoes This Mean That I Have a Loss?
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.
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.
In the vast majority of cases, the selling price of items at a garage sale, no matter how precious they are to you, will 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.
Does This Mean That I Have a Loss?
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 Craigslist, 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.
Occasional Garage Sales Versus Hobbies Versus Businesses
What if you like holding garage sales, you can make a few dollars off your old junk, and you decide to have another garage sale? Having a garage sale every so often requires you to follow the above stated rules. You only pay taxes if there is a gain. There is no option to deduct the loss.
However, if you are having a garage sale every single weekend, it goes from being something casual to becoming a hobby. Hobbies are something that you do because you enjoy them. This doesn’t mean that you can’t make money from your hobbies. However, Uncle Sam needs you to convince him that you are doing it for fun and that the primary reason you are doing it is not to make money.
If your garage sales meets the qualifications of a hobby, you may deduct expenses connected to your hobby on your Schedule A as miscellaneous itemized deductions. However, there is a catch. The amount that you deduct and expenses cannot be more than what you claim in income.
If you hire a professional marketing team to promote your garage sale, you don’t get as much money from your collection of 1960s platform shoes as you thought, and you lose money on the deal, you cannot deduct the loss.
If you go from the occasional garage sale to having them consistently, the IRS may see it as a business. You may not see it this way. You may not make any profit. But the IRS would want you to report your sales and expenses on a Schedule C 1040 federal form. The plus side is that if you lose money on your business, you are able to claim the loss.
Should You Give It to Charity?
Garage sale season has ended and you just couldn’t sell those old Star Trek posters you collected in the 90s. You could throw them all away, take them all back into your home and store them for next year, 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. If you itemize the deductions you make, it can have a decent effect on your taxes. You may 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.