Federal Income Tax

[jackie121949]

This my first year selling on Ebay. I'm confused about the rules for reporting earning from the 1099 -k. Supposedly you can deduct cost basis...which is defined as what you paid(fair market value). If I do that....then no tax is owed. The items...used tooling....were sold for less than what they cost. Can anyone shed any light?  Thank you.

[nobody*s_perfect]

If you get a 1099-K from eBay, then the IRS will assume that you owe income on all of it unless you report it and then deduct your expenses.  For hobby sellers who sell at a loss (also sometimes called "garage sale" sellers), the reporting is simple, as explained by the IRS: 

If you sold personal items at a loss, you have 2 options to report the loss:

Report on Schedule 1 (Form 1040)

You can report and then zero out the Form 1099-K gross payment amount on Schedule 1 (Form 1040), Additional Income and Adjustments to Income PDF.

Example: You receive a Form 1099-K that includes the sale of your car online for $21,000, which is less than you paid for it.

On Schedule 1 (Form 1040):

• Enter the Form 1099-K gross payment amount (Box 1a) on Part I – Line 8z – Other Income: "Form 1099-K Personal Item Sold at a Loss, $21,000"
• Offset the Form 1099-K gross payment amount (Box 1a) on Part II – Line 24z – Other Adjustments: "Form 1099-K Personal Item Sold at a Loss $21,000"

These 2 entries result in a $0 net effect on your adjusted gross income (AGI).

https://www.irs.gov/newsroom/irs-announces-2023-form-1099-k-reporting-threshold-delay-for-third-part...

[mam98031]

https://community.ebay.com/t5/Announcements/eBay-and-TaxAct-partner-to-help-you-navigate-new-Form-10...

https://www.irs.gov/faqs/small-business-self-employed-other-business/income-expenses/income-expenses

https://www.irs.gov/businesses/gig-economy-tax-center

https://pages.ebay.com/seller-center/service-and-payments/2022-changes-to-ebay-and-your-1099-k.html

https://www.irs.gov/pub/taxpros/fs-2022-41.pdf

https://www.kiplinger.com/taxes/irs-free-file

[luckythewinner]

---

@jackie121949 wrote:

which is defined as what you paid(fair market value). 

---

The best way to document the cost of an item to have the original receipt for the item in your records. 

Anything else - like an estimate - is subject to the discretion of the auditor if you get audited. 

I have never understood the suggestion that the IRS accepts "fair market value" as the cost basis in lieu of a receipt. If that were the case, couldn't everyone just claim they have no receipt, use the selling price on eBay as the FMV, and pay no tax? 

[slippinjimmy]

Fair Market Value would be the value on the date of acquisition not the date of a sale that might be 30 years later

If you sold an lp that you bought in 1975 but have no receipt, a value of $4 or $5 might be a reasonable Fair Market Value not the going rate for a regular LP these days.

[luckythewinner]

---

@slippinjimmy wrote:

Fair Market Value would be the value on the date of acquisition not the date of a sale that might be 30 years later

If you sold an lp that you bought in 1975 but have no receipt, a value of $4 or $5 might be a reasonable Fair Market Value not the going rate for a regular LP these days.

---

Thanks for the clarification. No one ever seems to mention "on the date of acquisition" when referring to FMV, and in fact some have specifically said to use a price guide or recent eBay sales to establish FMV.