@FlaSteve
The 1099K is a report to the IRS that certain transactions have occurred in a certain dollar amount. That’s all. It’s up to you how you report this. There is no legal reason to report it as taxable income if it is not, but on the other hand, the IRS will assume that all income is taxable unless you can prove otherwise.
You first need to make a determination of whether you are a “hobby” or an ongoing business. The IRS lists some factors to consider here.
https://www.irs.gov/newsroom/earning-side-income-is-it-a-hobby-or-a-business
If your selling activity is considered a business, you would report it on schedule C. You report your gross income and you deduct business expenses, such as eBay transaction fees, shipping, and the cost of your merchandise. You will be expected to have accurate and reliable business records. You will pay income tax and self-employment tax on the net profit from the business.
If your selling activity is considered a hobby (like a garage sale) then you only owe tax if you have a profit. When you are selling used personal items, that is considered a capital transaction, because items of tangible personal property or capital property. That means that if you sell an item that you held more than one year it is a long-term capital gain and items you only less than one year or short term capital gains.
As a hobby, your gain is the increase in value over the price you originally paid. You pay income tax on any gains, and you cannot deduct losses for item sold less than you originally paid. You also can’t deduct related expenses, such as transaction fees and shipping. You can report the sale of capital gains property on schedule D and pay less income tax than regular income, because the long-term capital gains rate is lower than the regular income tax rate.
However, once again, the IRS will be looking to see that you have reliable records of the items that you sell. You should at least make a spreadsheet of the items that you sell with the approximate purchase date, the approximate purchase price, and the selling date and selling price. Make your most reasonable guess if you don’t have the actual proof.
If everything you sold was sold at a loss, then you don’t have to report the 1099K as income. But, try to have some kind of record to show the IRS in case they send you a letter asking for more information. If you can’t prove that you were selling items at a loss, the IRS has the authority under the law to consider part or all of the income to be taxable. If you sold some items at a gain and some items at a loss, you can report the items that you sold at a gain even if it does not equal the total of the 1099K. And again, if the IRS send you a letter asking for more information, give them the best information you have and hope they accept your explanation.
But you do want to create this spreadsheet as soon as possible, and as close as possible in time to the actual sales. You may also want to download and print or make PDFs of your auction site listings before they expire and vanished from your sales history. Records that you keep at the time are considered to be more reliable than something that you make up from memory after you get an IRS letter.
The shortest answer I can give is that you need to
1. Decide if this is a business or a garage sale.
2. Pay tax only on items that you sell for more than you paid for
3. keep records.
