Yard sale, tag sale or garage sale – whatever you call it in your part of the country, this is the season for them. Most people are interested in yard sales as a way to pick up deals or unload unwanted items while making some cash at the same time. Unfortunately, you are not the only one who is interested at the prospect of earning some extra money – Uncle Sam is, too.
Fortunately, the likelihood of any of your yard sale money actually being taxable is rare – and here is why. Generally, the sale of items you own for personal use are subject to capital gains tax. Personal items include everything from large items such as vehicles and furniture down to your old records and T-shirts. However, capital gains tax on personal items only results if you make money on the sale of the item.
Making money in the sense of capital gains on personal items follows the same principles as stocks, where the gain is the sales price minus your basis in the item sold. In the case of personal items, your basis is almost always your purchase price. Capital gains from the sale of personal items – if you have any – needs to be reported on Schedule D of your Form 1040.
As a result of the tax laws outlined above, while it is theoretically possible to owe taxes from holding a yard sale, it is nearly impossible in practice. Nearly every item you sell that is personal property at your yard sale will sell for significantly less than you originally paid for it, therefore resulting in no capital gains taxes. This is the good news.
As you have probably already figured out, if you do not have a gain on these personal items, then you must have a loss (unless you just happen to break even). The bad news is that losses on personal items are not deductible. So no matter how much of a loss you suffered when you sold your kitchen mixer or old tuxedo, the government gives you no benefit.
The rules above are simple enough for the typical yard sale that is held only occasionally. But what happens if your yard sales become more frequent? If you start to hold regular yard sales, the government could determine that you are running a business. One of the key factors in determining if an activity qualifies as a business is if you have a profit motive for engaging in the activity. Operating yard sales as a business means you have to report your income and expenses on Schedule C. Whether or not your yard sale activity rises to the level of a business is something that depends on a number of factors and should be discussed with your tax advisor.
Finally, what about all the stuff you have left over that did not sell at your sale? Well, you can keep it and try to sell it next time around, throw it away or donate it. Donating your unsold items allows you to claim a charitable deduction if you itemize your deductions on Schedule A of Form 1040. Hopefully, you sold everything you wanted to, but donating what’s left might be the easiest option to get rid of your remaining items.