Plus, tips on maximizing yard sales and holding safe events during a pandemic.
When I went out to get the paper from our driveway this morning, I was puzzled by the amount of traffic on our usually quiet neighborhood street. Especially since it's Saturday.
Then I remembered that it was our annual fall community garage sale day. Actually, it's our only community garage sale day this year. The spring 2020 event was canceled due to COVID-19 concerns.
And while my immediate neighbors aren't big sellers of their old items, a few tend to participate. This year, though, the cars were left to simply drive slowly past with nary a card table or boxes of used personal goods in any adjacent drives or front yards.
Yep, we're still taking the coronavirus pandemic seriously here in my part of Austin. An early "sorry" to trick-or-treaters.
In most years, I tend to get questions, especially from new neighbors or ones selling their old household goods for the first time about any federal tax implications. Again, not so this year.
A quick state tax note: There's no income tax here in Texas, so that's not an issue for me and my neighbors. It could be, however, where you live, so check with your state's tax department and/or tax adviser.
If, however, you are willing to spread out your property a safe 6 feet or more — I hope you have a big driveway or yard or not many items! — and mask up, here's the tax deal on money from garage sales.
Sales must produce gains: Sellers, you are in tax luck.
However, it takes a quick stroll through the U.S. tax code to get to this tax-favorable destination.
Technically, notes the Internal Revenue Service in Publication 525, "if you sold an item you owned for personal use, such as a car, refrigerator, furniture, stereo, jewelry, or silverware, your gain is taxable as a capital gain."
The IRS even offers an example regarding sales of such capital assets, which is how the IRS classifies your own personal-use property:
You sold a painting on an online auction website for $100. You bought the painting for $20 at a garage sale years ago. Report your $80 gain as a capital gain on Schedule D (Form 1040).
But the key word here is gain.
As most of us who've ever held a garage sale can tell you, while you might come away with a decent overall amount of money, very few if any individual items are going to sell for more than you originally paid.
Since capital gains are calculated on your profit, that means those front yard individual item sales at less than you paid for each negate the need to report capital gains or pay any tax.
No tax loss relief, either: The tax flip side is that you also won't recognize any capital loss amount.
Tax losses come into play when you sell assets for less than you paid and then use that money to offset any gains. This is a standard tax strategy when it comes to things like stocks.
As far as losses on sales of your personal property, however, the IRS explicitly says you can't deduct them.
But that's OK. You got something for all that junk that for years was taking up needed space in your closets or garage.
And in the final accounting of the items' sale, the IRS, notorious for trying to get a piece of just about every cent we bring in (as discussed in my previous tip on what's taxable income), cuts you some pocket money tax slack.
Don't turn it into a business: Has all that cash you made on your garage or online sale got you thinking about turning this into a regular occurrence? You might want to think again.
The IRS could determine that you've gone from selling old household items as a hobby to becoming a business person. That could be the tax agency's take if decide to hold regular sales with the goal of making money, even if you don't immediately do so.
In this situation, you'd need to report your sales and expenses on Schedule C as part of your annual federal Form 1040 filing.
There is some good news here regarding any associated losses. If you qualify as a business and lose money trying to make money, you can claim such losses when you file your return.
The bad news, though, is that if you keep reporting losses year after year, the IRS likely will take a closer look at your filings. It wants to make sure you're still trying to make some taxable income instead of just producing tax losses.
Personal property sale tips: But I'm digressing from nontaxable garage sale money.
Go ahead with your once or twice a year attempts to turn your trash into someone else's treasure without worrying about taxes.
And to help you do so, this weekend's Saturday Shout Out goes to 10 articles that are equally divided into two categories: general tips and, since it's 2020, advice on how to hold COVID-safe yard sales.
First, the five coronavirus safe sale suggestions:
- How to Garage Sale During a Pandemic
- How to Host a Socially Distanced Garage Sale
- Garage sale precautions urged during COVID-19
- How to safely hold a yard sale during the coronavirus pandemic
- Are yard sales safe during the coronavirus pandemic? Here are tips to lower the risk
Second, for when we resume more-or-less more normal lives, the five articles with general tips on how to maximize your garage sale:
- Best Tips for Having a Successful Garage Sale
- How to Make More Money at Your Garage Sale
- 15 Garage Sale Tips That Will Make You Money
- How to Have a Successful Garage Sale – Ultimate Guide
- Garage Sale Tips: The Ultimate Guide to a Successful Garage Sale
Enjoy your safe selling and shopping!
You also might find these items of interest:
- Figuring the tax value of goods you give to charity
- Reporting gambling winnings, other income on Schedule 1
- How ordinary & necessary expenses become tax deductions
|Coronavirus Caveat & More Information
In 2020, we're all dealing with extraordinary circumstances,
both in our daily lives and when it comes to our taxes.
The COVID-19 pandemic and efforts to reduce its transmission
and protect ourselves and our families means that,
for the most part, we're focusing on just getting through these trying days.
But life as we knew it before the coronavirus will return,
along with our mundane tax matters.
Here's hoping that happens soon!
In the meantime, you can find more on the virus and its effects on our taxes
by clicking Coronavirus (COVID-19) and Taxes.