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timmix
New Member

Hobby changes

I have bought and sold model trains and music items I use at home only.  I might buy one train to buy another or a guitar the other way around as my mood changes I do have money in all this hobby stuff but it is all hobby. I have paid for this with my after-tax income and have no intent to make money or quit. I never keep records because I do not care it is hobby stuff. If I am taxed again I  paid taxes twice on the same money.

2 Replies
SarahB01
Employee Tax Expert

Hobby changes

Hi timmix,

 

I assume you are asking if you need to report anything on your tax return?

 

First of all, let me clarify the hobby rules. Taxpayers who make money from a hobby must report that income on their tax return. If someone has a business, they operate the business to make a profit. Taxpayers should consider IRS factors when determining whether their activity is a business or a hobby. They should base their determination on all the facts and circumstances of their activity. You can review the nine factors here: 

Hobby rules 

 

Assuming that you are not operating as a business per the IRS guidelines, you'll want to keep in mind that you will need to determine the basis of the item. This will determine if you made a profit on the sale. The basis is usually what you paid for it, including what it cost to fix it. If you sell an item for more than your cost basis, you have to report the profit as a capital gain on your tax return. If you sell an item for a loss, the loss is not deductible.

 

Take a look at the link below for more details:

Do I have to report personal item that I sold? 

 

 

Opus 17
Level 15

Hobby changes

"I never keep records because I do not care it is hobby stuff. If I am taxed again I  paid taxes twice on the same money."

 

Yes, because you don't have records.  Congress didn't take your situation into consideration when they changed the laws for 1099-Ks.

 

Selling tangible personal property is a capital transaction reported on form 8489 and schedule D.  If you sell for more than your cost basis, you have a capital gain.  If you sell for less than your basis, you have a capital loss.  However, capital losses on personal property are not deductible and do not offset your gains.  So if you sell 10 guitars with a combined loss of $1000 and one guitar with a gain of $100, you have a $100 capital gain.  Capital gains are taxed at lower tax rates if you owned the item for longer than one year. 

 

I don't think we know yet how to report this on your tax form, since many more people will be getting 1099-Ks for the first time.  We don't know if the IRS will stick to the old procedures or create a new procedure.  In my example you might get a 1099 for several thousand dollars but only have $100 of taxable income.  The old way of doing this was to either:

a. report the 1099-K as "other income", then report a negative 1099-K in the same amount, then report the capital sales on schedule D.  This way the IRS computer sees the 1099-K.

b. Leave the 1099-K off your return and just report the sales on schedule D.

In either case, the IRS might send a letter asking for an explanation, and you could send them a spreadsheet or other proof showing the items you sold and how you calculated your gain or loss.  You would need to include the purchase date, purchase price, selling date and selling price, along with a description.  

 

If you don't know the dates and prices, then you either guess, and hope you don't get audited, or enter a cost basis of zero and pay capital gains on the entire amount.  But capital gains tax is less than regular income tax. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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