Selling all of my stuff on ebay to move to Mexico

[DustinSpace]

I have sold lots of items on ebay this year and it is all my stuff for much lower than I paid for it.

I'm also selling my record collection on another site that works through PayPal payments. Both of these payment systems have a $600 cap before IRS reporting. I should have moved last year when it was $20K. 🙂

All of it has been for losses compared to original cost but I have no records of that.

How will I handle this for taxes? Is there a way you actually claim garage sale income for example that would be excluded from taxing?

Please don't just tell me its okay. I need specifics of how to deal with getting 1099s for 25k of sales and where and how to deal with on tax forms. 

Thanks!

[Bsch4477]

https://www.1040.com/blog/2019/7/12/selling-stuff-online-taxes-for-etsy-ebay-letgo-and-more/

[Laura_CPA]

Hi DustinSpace, 

Hope you are having a good day 🙂! Your 1099-K income could be reported on Schedule I, Line 8 of your 1040 as other income, if this is your hobby and have no intention of making a profit. Unfortunately, the new tax reform doesn't allow you to take any expenses related to this income, you'll be subject to ordinary tax rate depending on your income tax bracket. 

Now, if this is a business, you would enter 1099-K income under Schedule C. You will also be able to enter the expenses related to that income. What about if you don't have the exact expense or purchase price? Well, you can give a reasonable estimated amount by searching for the items online and keeping record of it (in case of an audit). 

Here's a resource for you to read further on the differences between a hobby and business: hobby vs business 

[DustinSpace]

Thank You @Laura_CPA for the answer.

I would not call this a hobby, as its the equivalent of an online garage sale. (I have unique weird collections best sold on ebay versus old school garage sale). So under some new tax rule there is no exception for these type of things and I have to call it a hobby with no deductions and pay full taxes on it? It is definitely not a business.

Thanx!

[Laura_CPA]

You're welcome @DustinSpace! To be more clearer it was the new law that passed in 2017, The Tax Cuts and Jobs Act (TJCA) eliminated claiming hobby expenses, here's a resource for you Investopedia.

Have a good day! 

[Opus 17]

I disagree.

If a 1099-K is, you have to deal with this on your tax return, but the 1099-K by itself does not mean the money is taxable.  It depends on what you did to get the money.  

You might be selling as a business or a hobby.  Since one of the key factors for treating your income as business income is the desire to make a profit, selling old items for less than their purchase price is not a business for tax purposes.  However, if you mix selling old and new items for profit, then you have a business, and the answer below does not apply and you do need to report a business.

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 items with a combined loss of $1000 and one item with a gain of $10, you have a $10 capital gain.  

You need a spreadsheet listing your items with a description, date purchased, cost when new, date sold, and selling price.  If you don't have receipts, make your best guess and hope you aren't audited.  Without proof of your cost, the IRS would be allowed to disallow your costs and declare the entire proceeds as taxable income.  A listing made at the time of sale is better than nothing, but not as good as receipts.  The more complete and businesslike your records, the more the likely auditor is to cut you some slack if some of your items are less-well documented.  Keeping your listings may help as well, if you are listing items as used, that will help to establish they were your previously purchased used items.  

On your tax return, there are two ways of dealing with the 1099-K.  There may be a new procedure for 2022 since so many more people will be getting 1099-K forms, we don't know yet.  These are the old procedures.

1. Leave the 1099-K off your return.  Report your sales as capital transactions on schedule D.  File by mail and include a written explanation of why you left off the 1099-K.

2. Enter the 1099-K as "other income."  Then create a negative item of other income to offset the 1099-k.  Enter your sales as capital transactions, and e-file.  The IRS may as later for an explanation of the negative item, you would reply with a letter of explanation and a copy of your records.  

[Opus 17]

Selling personal items for less than their cost is not taxable income.  Your problem is proving it.  See my answer above.

Just because you can't easily prove it does not mean you must give up and report the proceeds as taxable income.  But you will have to work hard to gather as much proof as you can in case of audit.

[IRS_is_the_worst]

Everyone seems to be avoiding the obvious and very specific instance where most of these eBay 1099k questions lie.  The individual tax return, not a business or hobby, where the individual sells a few items at a loss but totaling over $600 in gross sales and a 1099-k is automatically sent to the IRS. Opus' response is the only one that seems to address this but even those solutions leave a lot to be desired. For individual filers there is really no method to deduct the original cost of the items sold. Please correct me if I'm wrong here.

[Opus 17]

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@IRS_is_the_worst wrote:

Everyone seems to be avoiding the obvious and very specific instance where most of these eBay 1099k questions lie.  The individual tax return, not a business or hobby where the individual sells a few items at a loss but totaling over $600 in gross sales and a 1099-k is automatically sent to the IRS. Opus' response is the only one that seems to address this but even those solutions leave a lot to be desired. For individual filers there is really no method to deduct the original cost of the items sold. Please correct me if I'm wrong here.

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I'm not sure what you are saying.  Just because the IRS gets a report, does not mean the money is taxable.  It does mean the IRS will want to see some kind of explanation.

The concern is that the IRS computer will send an automated letter if it does not see the 1099-K on the tax return somehow.  That also does not make the income taxable, but it means you have to have an explanation ready.

Currently, there is no really good way of telling the IRS that a 1099-K is not taxable income (because its from hobby activity, or personal sales at a loss, or gifts from crowdfunding).  The old way is to attach a written explanation, but the IRS is backlogged on paper returns.  You can enter the 1099-K and then create a negative offset.  That way the computer is happy because the 1099-K matches, but a human may want to see an explanation of the negative entry.  Some other software may allow you to attach PDFs that could contain a preemptive explanation) but Turbotax does not. 

The IRS could create a new procedure for all the new 1099-Ks or they could leave things as is and struggle through.  We don't know yet. 

[IRS_is_the_worst]

You nailed what I was saying with this: "Currently, there is no really good way of telling the IRS that a 1099-K is not taxable income."

As you indicated, the fact that a 1099-k is received by the IRS does not, in fact, mean the money is taxable but it does transfer the burden of proof onto the individual tax filer.