Come Sail Away: 3 Important Concepts About Garage Sales & Taxes

(Paid) Stacks of money

(Paid) Stacks of moneyWithout a doubt, websites like eBay and Craigslist have taken a big bite out of the used goods market. However, thousands of families and individuals still hold garage sales in front of their homes each weekend around the country. So, what do the IRS and Uncle Sam say about garage sales and taxes?

Garage sale items are generally sold at a loss.

Let’s say you’re having a garage sale and you’ve pulled together some of your kids’ old clothes they’ve grown out of, a few boxes of baseball cards, and some worn pots and pans from your kitchen. More than likely, you will be selling these items for less than what you originally paid for them as new purchases. As such, the IRS considers this process to be selling something at a loss. This is because you aren’t exactly turning a profit and making money on these sales. Rather, you are losing money in the end because these items are being sold for much less than what you already paid for them. You are therefore not required to report garage sale income on anything you sell at a loss.

Also, in most instances, the losses you incur when selling items at a garage sale are not tax deductible.

Capital gains from a garage sale must be reported to the IRS.

On the other side of the coin, if you sell items at your garage sale for which shoppers pay more for these items than their original purchase prices, this is labeled as a capital gain. Basically, you are making money by selling something for which you paid a lower amount. In most cases, capital gains are earned by a seller when he or she sells an item that has appreciated in value over time. Examples include hard-to-find collectibles – such as old comic books, baseball cards of Hall of Fame players – and antiques.

Have leftover items? You can deduct them if you donate them to a charity.

Perhaps your garage sale goes well, but you are left with a handful of items. Find a local charity, such as a youth ranch or non-profit for the homeless and underprivileged. As long as you select a qualifying charitable organization in the eyes of the IRS, you can write off your donations as a tax deduction on your income tax return. Just be sure to get a copy of any receipts that verify your contribution. In general, the fair market value of an item is used to determine your write-off.

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