The chilly spring days are in the rear view mirror and summer weather is rolling in. That can only mean one thing, garage sale season is finally here. After a festive holiday season of receiving shiny new toys and a long winter of piling up old, outdated and unwanted things, it’s time to clear out your house and turn your junk into another’s treasure.
Hosting a garage sale seems like it should be easy. Step 1: Put your junk in the garage; Step 2: Put out a sign; Step 3: Watch your junk disappear and get paid for it! Is it really this easy, or are there some steps missing?
Are there tax consequences to hosting a garage sale?
Per the IRS website, if you have infrequent garage sales you generally do not have to report the sales on your income tax return. This is because you are reselling items you purchased to use personally rather than purchasing with the intent to resell the items for a profit. For items that are sold for less than you originally paid for them, the sales are not reportable, but the losses are not deductible either. However, if you are lucky enough to sell an item for more than you paid for it, you will generally be required to report this gain as taxable income. Some examples of items that commonly increase in value are art, antiques, and collectibles.
Another tax to be aware of is sales tax. Sales tax regulations for garage sales can vary from state to state, so you should check with the state you live in to confirm its regulations. In Ohio and Michigan, garage sales are referred to as “casual sales” and are typically not subject to sales tax. Per the Ohio Department of Taxation, “casual sales are not taxable transactions, as sales tax was paid on these items the first time they were purchased.”
However, items sold at a garage sale may occasionally be subject to sales tax. This typically occurs if an item is purchased very inexpensively, with the intention of reselling the item at your own sale with a significant price markup. Since the item was not originally purchased for personal use, it is considered a retail sale rather than a casual sale. Thus, sales tax should be charged on the transaction. To remit the sales tax, you will need to register with the state and file a sales tax return.
There are a few other items to keep in mind when you decide to have a garage sale. This includes checking with the local ordinances for where you live to see if a permit is required to have a garage sale, or if there are other regulations you are required to follow. If permits are required, they are typically very inexpensive to acquire. Additionally, the Consumer Product Safety Improvement Act of 2008 has made it illegal to sell children’s items that have been recalled or are considered dangerous. If this law is violated, you could be subject to fines of up to $100,000 per violation up to a maximum of $15 million. These large fines are intended to defer large corporations, but even individuals running a garage sale are subject to the same rules. You can check the Consumer Production Safety Commission website for information regarding products that cannot be sold.
So garage sales are fairly easy to set up and are a good way to rid your house of some clutter, but there is some planning required beforehand to ensure that your garage sale is in compliance with all laws and regulations. The good news is that you will typically not have to worry about tax consequences and will be able to keep all that extra cash for some summer fun in the sun.
By: Mark Sawyer, CPA