Profitable Garage Sales Become a Taxable Event

Someone came to my yard sale last week and purchased a couple of items. She saw I was writing down the prices I received for each item. She asked if I was saving that information to report on my tax return and I just laughed. But then I got to thinking - am I supposed to report my yard sale profits on my tax return? J.J. via e-mail.

It's amazing how easy it is to frighten people with the mere mention of the word taxes. Raffles are particularly fun places to attend if you like giving people a bit of a scare. Put your name in a hat and win a chance at a $100 jackpot, then when someone else wins the money, approach the person with a pen and clipboard in your hands, ask their name and Social Security number, and then just walk away. Out of the corner of your eye you can watch the person's smile fade away. He'll spend the rest of the evening asking friends if he has to report this money on his tax return, and what will happen to him if he doesn't. We accountants get our giggles in the most remarkable ways.  

As for your yard sale, someone probably enjoyed putting the fear of Uncle Sam into your event, but the likelihood of your having to report the proceeds from your sale on your tax return is pretty slim.  

Most items sold at yard sales are sold at rock bottom prices. That fondue pot you got for your wedding that's still in the original carton might sell for $2.50. The chartreuse vase you received from Aunt Clara when you were in the hospital might bring $.50.  

A case of 100 rolls of thermal paper that goes with a calculator you haven't seen in 20 years will probably only bring a few laughs. And the gently worn clothes that weren't even fashionable when they were in style will only bring smiles to the faces of children who like to dress up.  

These are the items that grace the lawns of the nation's true hagglers and barterers. These are the items that also grace the garages, attics, closets and basements of most of the homes in our country. From time to time you'll actually sell some of these items - most likely to someone moving into a house for the first time hoping to find a way to fill those empty closets and attics.  

Often you'll end up packing up all your sale items at the end of the day, leaving them in a pile for the Salvation Army to pick up, or hauling them off to the local church rummage sale.  

Believe it or not, the IRS actually does have a stake in all that transpires in the yard sale business, but the government involvement is probably not of the type you should fear.  

The only time you need to worry about reporting the proceeds of your yard sale on your tax return is when you start selling items at a profit. For example, if, in addition to your faux pearl earrings and stained (as opposed to stainless) flatware, there are Apollo 13 glasses, arrowheads, vaudeville programs, Life magazines, political buttons, and other trinkets you acquired at little or no cost, and you are now selling these items for a tidy profit, then yes, you are technically supposed to report the sale of these items on your tax return.  

Who's going to know, you ask, if you sell your old Bob Dylan's Greatest Hits album with the original Milton Glaser poster of Dylan with the kaleidoscope hair for $20 when you only paid $3 for the album? Probably no one will at the IRS ever know or question the event, but technically, any sale you make that results in a profit over your original cost is a taxable event.  

Should you find yourself with a pocketbook bulging from the profit on items that were sold at higher than their original cost, and particularly if you make a habit of selling collectible items such as the political buttons, magazines, and other items mentioned previously, then you are engaged in taxable transactions and should report the income from these sales (proceeds less the original cost) on your tax return. These sales should be reported on the IRS's Schedule D which gets attached to your income tax return.