Federal Tax Question

[super_seller_n1]

I am clearing out our house and thinking about putting everything I don't need on ebay.  Question, I understand that I will get a tax form at the end of the year to file with my federal return.

So, for example, if I bought a new item for $100 (no receipt left) and sold it for $80 after using it for some time.  Do I need to pay Federal Tax on that $80?   I can see if I bought it for $80 and sold for $100, I would pay federal tax on $20 profit but how do I calculate tax for used stuff?

THank you!

[heckofagame]

You pay tax on your net profit. That would be gross profit minus expenses. 

Please consult a tax professional. 

[slippinjimmy]

Gross revenue - expenses - cost of goods = net profit

In your example the "net profit" would be $0.00, tax on $0.00 even if you have a million Dollars of income from other sources is still ZERO.

If you are selling personal possessions there are alternative ways to report (Capital Gains) but in your example there is no gain.

The lack of original receipts is not an issue unless you are selling a large amount of stuff that would be questionable if you claimed they were all just stuff from around the house (like you just happened to have 20 smartphones that were only made in the past year or two).

[martin2001]

The revenue stream from selling your stuff can be qualified either as hobby or business. Unless you have tons of stuff that you could sell for years as business, your income clearly qualifies as hobby income.

You report it on your 1040 as Other income. You can't deduct the cost of your item (e.g. purchase price), also you can't report a 'loss' if you sell it for $80 and purchased it for $100 (you can do these things only if you ran a business).

Although the other poster's suggestion to consult a tax advisor is prudent, don't waste any money on it. It is really not that complicated. Your total sales for selling your stuff are e.g. $1000, you report it as other income on your 1040. That's it.

There are tons of articles (=free advice) on the web from the tax advisors about this subject. Also, you may want to consider buying tax software (e.g. turbotax etc) which leads you step by step thru the tax forms.

AT the end it checks your return, calculate the likelihood of being audited (virtually zero) and allows you to file your return electronically. I have been doing this myself since 1998 as a business using the above tax software. Never had a problem. It is not that complicated. Also, by studying it and doing it yourself, you will gain the knowledge, which will allow you to perhaps consider starting a business, without being intimidated by the tax issues.

[nobody*s_perfect]

if you purchased an item for $100 and sell it for $80, ten you have a loss and no taxable income from that transaction.  Here's some advice from the IRS:

Q3. Is the gain or loss on the sale of a personal item used to compute my taxable income? Is that reported on a Form 1099-K? (added December 28, 2022)

A3. Gain or loss on the sale of a personal item is generally the difference between the amount you paid for the item (the purchase price) and the amount you receive when you sell it (the sales price).
For example, if you bought a refrigerator for $1,000 (the purchase price) and sold it for $600 (the sales price), you have a loss of $400. $600 sales price - $1,000 purchase price = ($400) loss amount.
On the other hand, if you bought concert tickets for $500 (the purchase price) and sold them for $900 (the sales price), you have a gain of $400. $900 sales price - $500 purchase price = $400 gain amount.
For calendar year 2022 tax returns, if you receive a Form 1099- K, for the sale of a personal item that resulted in a loss, you should make offsetting entries on Form 1040, U.S. Individual Income Tax Return, Schedule 1, Additional Income and Adjustments to Income, as follows:
Report your proceeds (the Form 1099-K amount) on Part I – Line 8z – Other Income, using the description "Form 1099-K Personal Item Sold at a Loss."
Report your costs, up to but not more than the proceeds amount (the Form 1099-K amount), on Part II – Line 24z – Other Adjustments, using the description "Form 1099-K Personal Item Sold at a Loss."

https://www.irs.gov/pub/taxpros/fs-2022-41.pdf
 
In other words, if everything you sold was sold at a loss (as in a garage sale), you enter the total from your 1099-K on line 8z and then enter that same amount on line 24z for a net of zero for taxable income.

[coolections]

@martin2001  I would tend to completely disagree with your statement. The OP "CAN" deduct the cost of the item. I am glad you are wiling to pay tax on everything you sell on Ebay but there is no need to do so.

[martin2001]

Re-read the post. You can deduct expenses if you run a business. As far as hobby is concerned (which, based on the OPs' info would clearly qualify as  hobby income), the IRS is clear:

Beginning in 2018, the IRS doesn't allow you to deduct hobby expenses from hobby income. you must claim all hobby income and are not permitted to reduce that income by any expenses.

[nobody*s_perfect]

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@martin2001 wrote: ...the IRS doesn't allow you to deduct hobby expenses from hobby income. you must claim all hobby income and are not permitted to reduce that income by any expenses.

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@martin2001  Please note the highlighted section in my post above, which quotes the IRS's own FAQ regarding 1099-K's received for sales that were losses:

"Report your costs, up to but not more than the proceeds amount (the Form 1099-K amount), on Part II – Line 24z – Other Adjustments, using the description "Form 1099-K Personal Item Sold at a Loss."

[lacemaker3]

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@martin2001 wrote:

Re-read the post. You can deduct expenses if you run a business. As far as hobby is concerned (which, based on the OPs' info would clearly qualify as  hobby income), the IRS is clear:

Beginning in 2018, the IRS doesn't allow you to deduct hobby expenses from hobby income. you must claim all hobby income and are not permitted to reduce that income by any expenses.

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@martin2001, that information is no longer correct. The information below is copied from the IRS website, and is current and correct.

@super_seller_n1, this explains how you handle reporting income from sales of personal items, when you are not operating as a business. This is the same information as @nobody*s_perfect provided, but it seems somewhat easier to read and understand, to me. It also covers the situation where you sell a personal item at a profit.

https://www.irs.gov/businesses/understanding-your-form-1099-k#do

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[powell-memorabilia]

You don’t have to pay taxes on nonexistent profits. If you use some thing like TurboTax, there is even a prompt to ask you if you sold on electronic market places, and if those were treated more as a business or just an online garage sale. Seriously, it couldn’t be easier.