Do you often have garage sales, or sell unwanted items on platforms like eBay? While these sales might feel like harmless ways to declutter and make a little extra cash, knowing when they may trigger tax liability with the IRS is key to staying compliant. With the secondhand economy growing fast and resale platforms required to report payments over a certain threshold, even casual sellers could receive a tax form they weren’t expecting. That doesn’t automatically mean you owe tax, but it does mean you’ll need to understand the rules around capital gains, personal property losses, and what separates a casual hobbyist from a business in the eyes of the IRS. Here’s what to keep in mind to avoid unexpected tax obligations on your garage sale (or online) earnings. 
Capital Gains from Garage Sales
When you sell personal items you originally purchased for your own use — whether it’s a secondhand treadmill or an old MP3 player — those items typically don’t trigger capital gains tax. That’s because most personal-use items are sold at a loss or for minimal value. The nature of informal garage sales is also such that it may not leave a triggering paper trail. However, if you do manage to sell an item for more than you paid, the IRS considers that a capital gain. For example, if you bought a rare vinyl record for $10 and sold it for $500, you’ve made a taxable profit. Here’s how capital gains tax works:
- Long-term capital gains (on items held for more than a year) are taxed at 0%, 15%, or 20%, depending on your income bracket.
- Short-term capital gains (on items held for one year or less) are taxed at your ordinary income rate, similar to wages or salary.
Selling Through eBay, Amazon, and Other Platforms
What if you sell your items online instead of on your driveway? The tax rules are largely the same, but digital platforms add an extra layer of reporting and visibility. Third-party payment platforms like PayPal, eBay, and Etsy are required to issue a Form 1099-K if your total payments exceed $600 in a calendar year. This doesn’t automatically mean you owe tax — it simply notifies the IRS that you received a certain amount of payments through these platforms. Whether you owe tax still depends on whether you made a profit and, if so, how much. If a capital gain does occur, which is rare with typical garage sale items, you’d report it on Schedule D of your federal Form 1040. If you’re selling regularly and with the intent to make a profit, the IRS may consider it business activity, which falls under different tax rules, including potential self-employment tax and Schedule C reporting.
When Does a Garage Sale Become a Business?
Occasional garage sales? Not a problem. But if you’re regularly flipping items at the profit, the IRS might consider that a business. Here’s how to tell the difference:
- Are you selling with the intention to make a profit?
- Do you have repeat or ongoing sales activity?
- Are you using business or marketing strategies to source and resell items?
If you answered yes to any of these, you may be running a business in the eyes of the IRS. That means you would need to:
- Report your income and expenses on Schedule C (Profit or Loss From Business).
- Potentially pay self-employment tax.
Key Tax Reminders
Whether you’re hosting a one-off garage sale or casually reselling items online, it’s important to know where casual selling ends and tax responsibilities begin. These tax reminders can help you stay on the right side of the IRS.
- Receiving a 1099-K doesn’t automatically mean you owe tax. It simply means the IRS was informed of your sales activity through a third-party platform.
- Selling personal items at a loss isn’t taxable. Most garage sales and online resellers fall into this category. Still, it’s wise to keep a basic record of what you originally paid, especially if you receive a 1099-K.
- Check for state and local tax rules. Tax laws don’t stop at the federal level. Some states may require permits or sales tax collection at the state level too.
- Donating unsold items could mean a deduction. Giving leftover items to a qualified charity may allow you to claim a tax deduction based on fair market value. Be sure to document the donation and retain receipts for items valued over $250.
Whether you’re clearing out the garage or selling online for extra income, a tax advisor can help you maximize your deductions without raising red flags. Our team at Fusion CPA can help you understand what’s reportable and how to stay fully compliant. Contact us today!
__________________________________________________________________________________
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.