I often declutter and sell our used items, some are gifts and some are things we have purchased such as kids clothing, electronics etc… I do not sell to make a profit but do not have receipts for the things that were given as gifts. How do I go about selling things with the new tax law so it’s not counted as profitable income?
Gifts valued $15,000 or less are not reported on tax return ($16,000 in 2022).
The sale of personal items at less than the purchase price are not reported on a tax return.
@DoninGA Ebay etc. are now required to issue a 1099-K at a $600 threshold.
There are three general rules you need to know.
1. When you sell personal items for less than their cost, you have a capital loss that is not deductible, but if you sell items for more than their cost basis, you have a taxable capital gain.
2. If you are in an ongoing trade or business with a profit motive, you file a schedule C for self-employment, otherwise you are engaged in a hobby. You can't deduct expenses (like shipping) when you have a hobby.
3. If audited, all your income is presumed taxable unless you can prove otherwise.
As long as you are not engaged in an ongoing trade or business for profit, you have a hobby, and as long as you sell for less than you paid (or less than your cost basis), your income is not taxable. You need to be keeping reasonably good records of your sales, including a description of the item, the approximate date you acquired it, how you acquired it, the approximate price you paid (or your best guess of what the giver paid), the selling date and the selling price, at least to the best you can recall. Your cost basis in gifts is whatever the giver paid, and you can make an estimate of that from the prices the items probably sold for at the time, assuming they were new. The only time cost basis really gets tricky is with inherited items or gifts of things that have increased in value, such as collectibles.
We don't know if the tax return forms will be updated to account for the fact that many more people than before will be getting 1099-K forms for their casual sales of used items. I don't think there's much point in telling you how you could have reported it for 2021 if the forms may change, so the best thing to do is make sure you have good records and check in next tax season before you start preparing your return.
Still have questions?Make a post