If I sell an item for less than I paid on Ebay, but I had received a rebate for the product that made the product effectively free for me, is the profit taxable?

Yes, you need to report the $10 as income.

When you receive a cash rebate on an item, that isn’t considered income; however, you have to reduce your basis by the amount of the rebate.

So, when you purchased your item for $25, then got the $25 rebate, your basis was zero.

Your profit was your sales price ($10) minus your basis ($0).  

Please see Cash rebates under Other Income in Publication 525 (2021), Taxable and Nontaxable Income for more information. 

TurboTax’s Cost Basis: Tracking Your Tax Basis - TurboTax Tax Tips & Videos is also very helpful.

Hi thanks this is helpful! 

So unfortunately I mixed together my sales of items that I made a loss on (e.g. reselling used items) with sales of items I made a profit on (items I got free that I later resold for a profit). I got a 1099-K from eBay and will be filing it. For simplicity let's say $3k in reselling used items (net loss) and $8k in reselling new items (net profit), and so 1099-K reported total income of $11k. Let's also say I spent $500 in shipping costs on the new items I resold and made a profit on. In turbotax, will I list $11k as my 1099K earnings under Self Employed, and then $3,500 under "Other Miscellaneous expenses" (in addition to any other shipping expenses that apply to the new items I resold)? In other words, to show that my tax liability comes out to $7,500 rather than the full $11k? 

Thank you again!

This sounds like you are selling on eBay as a business.  TurboTax self-employed will guide you through entering all of your information that will be reported on your schedule C.  After you enter your income in the Self-Employment section, you will be given the opportunity to select expenses that you have with your selling on eBay. 

 

Since this is eBay sales, if you enter eBay as the name of what type of business, your next screen will say "Let's confirm your eBay work"  Select Yes I work in Electronic auctions and the questions will be tailored to your particular business. The Shipping and cost of goods sold will be included on this screen. 

 

 

Hi thank you! 

 

So just to confirm: when adding up items I sold on eBay in which I made a net loss (e.g. selling used items for less than I paid), let's say all these transactions totaled $1,000 on my 1099-K from eBay. Would I put $1,000 under the "Inventory" deductions box in TurboTax? I just want to make sure I'm putting this deduction in the correct place. 

 

Thanks! 

Yes, you would.  If you enter your 1099-K from eBay under Inventory, cost of sales is computed as follows:

• Beginning inventory  +
• Purchases -
• Ending inventory =
• Cost of sales

At the screen Let's get the value of your inventory enter $0 at the beginning of 2021 and $0 at the end of 2021.

 

So at the screen Let's get the cost of your goods, the $1,000 would be entered as a cost of purchases.

 

This would leave cost of sales as $1,000.

 

If you had an inventory left at the end of 2021, then report that value for the inventory at the end of 2021 and cost of sales would go down by the same amount.