It’s officially summer which means vacations, road trips and yes, lots of yard sales. Summer is peak yard sale season with homeowners hoping to interest those in packed cars by offering their wares on the lawn or, sometimes, in the garage. On any given weekend across America, you can find individual yard sales, multifamily yard sales and even entire block yard sales.
There are, on average, 165,000 yard sales each week in America, attracting 690,000 buyers. Bargain hunters will snatch up nearly 5 million items per week, bringing in revenue to the sellers of $4,222,375. If you do the math, that means that approximately $219,563,500 changes hands each year as folks swap out trash and treasures for cash.
That’s a lot of revenue. So, does it get taxed?
Chances are, it does not. At least when it comes to Uncle Sam.
Sales of personal items – meaning those things you own for personal use – are generally taxable as capital gains. Personal items include not only the big stuff, like your car and your sofa, but also the little stuff like your old clothing, your dinnerware and your well worn copies of Frampton Comes Alive and Saturday Night Fever.
If you sell those things and you make money, you would report those items as a capital gain. Capital gain is the difference between the selling price and the basis (usually, the purchase price). If you do hit the yard sale jackpot and make money on the sale of your personal items or items held for investment (like a coin collection or collector’s item), you would report the gain on your federal form 1040 at Schedule D.
That said, you don’t have to be a retail genius to figure that in almost every case, the selling price of your personal items – no matter how precious your rainbow-striped shirt from the 1980s was to you – is likely significantly less than what you paid for it. Realistically, selling your treasures won’t likely result in an actual taxable gain, even if you have cash in hand at the end of the day.
So if you don’t have a gain, does that mean that you have a loss? Although you – and most of America – will probably lose money selling every day items secondhand, you will not have a loss for federal income tax purposes. No matter how much money you originally paid for your Bowflex, Betamax or your United States Football League tee shirt, you’re stuck with whatever someone is willing to pay you for it and chances are, it’s considerably less than what you originally paid. If that’s the case, you cannot deduct a loss on the sale of personal items.
But what if, instead of cleaning house with lots of strangers, you virtually clean house? Meaning you try your hand at selling your stuff via the internet? The same rules apply: if you have a gain, you report it and if you have a loss, you’re out of luck.
The bottom line is that most yard sales – even virtual ones – for personal items do not affect your taxes.
What if you find that you’re good at yard sales? Or that you like having strangers wander across your lawn in search of a bargain? And what if you decide to do it again?
A once in a blue moon yard sale is still subject to the rules as above: you only pay if there’s a gain and you can’t deduct a loss. But if you start upping the ante in the yard sale market with sales that stretch from occasional to regular, you might be a yard sale hobbyist. You’re generally a hobbyist if you engage in activities for fun, and not for profit. That doesn’t mean that you can’t make money (you can) but the IRS wants to know that profit isn’t your primary motive. If you qualify as a hobbyist, you can deduct expenses related to your hobby as miscellaneous itemized deductions on your Schedule A. There is an important caveat: you can’t deduct more in expenses than you claim in income. So, if you lose money because you overpromoted your event, paid too much for tag stickers or other reasonable expense, you’re stuck with the loss.
If you move on to more than occasional sales, the IRS may determine that you’re running a business. This can be true even if you don’t feel like you’re running a business and even if you don’t make any money (though profit motive is a key factor in whether you have a business). If your activities rise to the level of a business, you would report your sales and expenses on your federal form 1040 on a Schedule C. The plus side of filing the Schedule C? If you qualify as a business and you lose money on your venture, you can claim the loss.
What if, at the end of the day, despite your best efforts, you don’t get rid of all of your stuff? You have a few options. You can toss it in the garbage (no tax consequence), lug it in back into your house (no tax consequence), give it away to friends, family or random strangers (likely no tax consequence so long as it’s under the federal gift tax exclusion for 2014 of $14,000) or donate it to a qualified charity. The latter has a pretty decent tax consequence: if you itemize your deductions, you can claim a charitable deduction for the fair market value of your donation. If you’re not sure how to value the items – and they are of the yard sale variety – here’s a quick tip: check the price tag you just wrote out. The value that you indicated you were willing to sell the item for should be fairly close to the value for charitable purposes. Be smart: if you were willing to sell your Madonna hair scarves at 10 for $1 at the yard sale, you can’t reasonably argue that they’re now worth $10 each. For more about charitable donations, see this prior post.
Of course, these are the federal income tax rules. State and local tax rules may vary, including whether sales are subject to sales tax. Be sure to double check with your tax professional for the specifics where you live.