Selling personal items on eBay

[OUBuckeyegal]

Hi. I buy and sell a lot on eBay. The items are jewelry, shoes, handbags and clothing. All of them were purchased for personal use and sold for less than what I paid when I wanted to buy something new. The amount is over the $5,000 eBay threshold for reporting. Will I have to pay income taxes on items that were sold for less than I paid? 

Thank you for your help. 

[rjs]

No, you do not have to pay income tax on personal items sold at a loss. (But you also cannot claim the loss on your tax return.) If you get a 1099 reporting form from eBay you will have to report the sale, but there will be a way to cancel out the income so that you do not pay any tax.

This is an area where the details for entering the sale in TurboTax might change for 2024. The 2024 software is not available yet. After you get the 1099 from eBay, come back the to Community and someone will be able to tell you how to enter it. When you post, tell us what kind of 1099 form you got (1099-K, 1099-MISC, etc.) and what version of TurboTax you are using (Online or Download, and what edition: Deluxe, Premium, etc.).

[Bsch4477]

If you purchase an item for personal use and later sell it for less than you paid for it then you do not owe taxes on the sale. Nor do you have a loss you can deduct against other income. You may still be required to report the sale on your tax return. We can help you report the income and then zero it out so you won’t have to pay tax on it. The forms ad details to do that are still being worked out. 

[Opus 17]

It depends on your recording keeping.

There are two separate issues here.

First, should this be considered a hobby or a business.  The IRS has some guidelines. 

https://www.irs.gov/newsroom/heres-how-to-tell-the-difference-between-a-hobby-and-a-business-for-tax...

Second, how good are your records.

To put it bluntly, if you don't have records, the IRS can tax it all.  There was a court case of an IRS agent (!) who did what you did, did not have records, and the IRS taxed it all.

You should have, at a minimum, a list or spreadsheet showing the item name or description, date purchased, price when new, date sold, selling price, and other costs (listing fees, PayPal fees, shipping fees).

If this is a hobby, you only need to report items you sold for more than your cost, that results in a taxable capital gain (using the interview for selling property and other investments). Don't report items you sold for a loss because you can't deduct it.  If you get a 1099-K, you need to report it, and I think there is a button to click for "I was selling personal items for less than cost" (because this is a common situation).  The income won't be taxable, but if you are audited, you need to show those records, and they need to be made close in time to the sales, and not the night before the audit.  (Make your best guess where you don't have proof.).  The IRS is not going to expect to see a receipt for a 10 year old piece of costume jewelry, but they will want to see a description that justifies the price you claim.  (Don't say "handbag", say "Michael Kors handbag from Macys in 2009, approximately $200 new".)

If you wanted to treat it as a business, you would list the items as inventory, and you can deduct your selling expenses as a business expense.  However, since one of the factors of running a business is profit motive, and selling only used items for less than their cost will never result in a profit, treating this as business will probably not survive audit, unless you are also doing something like browsing garage sales and thrift stores for hidden gems that you can mark up and sell.  That would result in a profit and might be allowed as a business.  

[cw4754]

I appreciate this info.  Very informative, but I have some additional questions.  I am currently downsizing and have 30+ years of stuff to sell.  Last year I sold about 100 items, some made a profit but the remainder were at a loss.  I have a very detailed spreadsheet.  The 1099k reports the gross amount and includes sale amount, buyers shipping cost and eBay fees.  The latter two are not income to me.  In TurboTax I entered selling personal items and some were sold at a loss. I entered info on 1099k and continued.  It did not request any other info, but when I ran the check it reported an error but did not lead me anywhere.  Maybe still an issue with the software.  There should be a place where I can enter shipping cost, fees and other expenses.  Sorry for the lengthy message, but any help is appreciated.

[JamesG1]

If you are reporting sales as personal item sales, you will be reporting the entries on IRS Schedule D.

I suspect that you have reported the IRS form 1099-k income, but now need to report the sales proceeds and personal item cost on Schedule D under Investments and Savings.

When you enter the sales information, you will want to click the button to report the loss on sale of a personal item.  Personal items sold for less than their basis (most likely, the original purchase price) report $0 capital gain on line 7 of the Federal 1040 tax return.

Personal items sold for more than their basis report the gain on line 7 of the Federal 1040 tax return.  See this example.

                           Selling           Cost

                           Price              Basis

Tix 1                   $500              $1,000        Capital loss on personal item = $0 gain/loss

Tix 2                   $400               $300          Capital gain on personal item = $100 gain

Tix 3                   $100               $100          No capital gain or loss              = $0 gain/loss

                            $1,000           $1,400

To report Personal item sales, follow these directions.

• Down the left side of the screen, click on Tax Home.
• Click on the down arrow to the right of Review.
• Click on the blue band labeled Review.
• Down the left side of the screen, click Federal.
• Down the left side of the screen, click Wages & Income.
• Scroll down to Other Common Income click on the dropdown menu.
• Click Start to the right of Form 1099-K.
• At the screen Did you get a 1099-K?, select Yes.
• At the screen How would you like to upload your 1099-K? click Type it in myself. 
• At the screen Which type of income is your 1099-K for, select the button for Personal item sales.  Click Continue.
• At the screen Let's get the info from your 1099-K, enter the information.      Click Continue.
• At the screen Personal Item Sales, you are told that further information will need to be entered.
• Because $600 of the selling price will not be reported, enter $600 under I sold some items at a loss or had no gain. 
• Learn More provides detailed information for the next steps.  Click Continue.
• At the screen Your 1099-K summary, notice that the income relates to ‘Personal Items’.  Click Done.
• At the screen Your income and expenses, scroll down to Investments and Savings (1099-B, 1099-K….).  Click Add/Edit.
• At this screen, you will be asked to Review the Personal item sales (1099-K).  Select Review.
• At the screen Now, enter one sale…., answer questions about the personal item sale.  
• Because you are only reporting the gain transaction, report  $400 as Proceeds and $300 as Total amount paid.
• Click Continue.
• At the screen, Let us know if any of these situations apply to this sale, sales expenses may be recorded that are identified in your spreadsheet.

The entry will be reported:

• on Schedule D of the Federal 1040 tax return, and 
• on line 7 of the Federal 1040 tax return.

Capital loss for a personal item sale reports $0 capital gain on line 7 of the Federal 1040 tax return.

@cw4754 

[cw4754]

James,

This was perfect!  I was on the phone with Intuit yesterday and I was told all eBay sales have to be treated as a business which I knew was not correct, so I really appreciate this.

I just have a couple of questions:

1.  Do I have to enter each item sold at a gain or can I do one lump entry?

2.  I don't actually know the date purchased on these items so can I enter any date?

Thank you again!

[JamesG1]

If you do not know the exact date, make a fair estimate of the purchase date.

If you do not list each item sold, aggregate the sales as follows:

• Capital loss on personal item ($0 loss is allowed on the Federal income tax return)
• Capital gain on personal item (short-term capital gains on assets held one year or less)
• Capital gain on personal item (long-term capital gains on assets held more than a year)
• No capital gain or loss ($0 gain or loss)

Retain a record of the personal items sold should a tax authority have a question at a later time.

@cw4754 

[rkpress]

Do I need to fill out "enter one sale" for EVERY item I sold? I sold 54 items of my mother's personal items she wanted to get rid of and like 85-90% of them were net losses. 

[cw4754]

Thank you again James for all the help.  Very much appreciated.