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.