Do I have to pay income tax when reselling pre-owned items for less than I paid?

The good news is that for personal items like watches and cameras that you've owned and used yourself, you generally don't need to worry about income tax when selling them at a loss. The IRS considers these personal capital assets, and unfortunately, losses on personal-use items are not tax-deductible. You only need to report gains from personal item sales, not losses. So in your examples, since you're selling both items for less than you paid originally, there's no taxable event to report on your tax return. This applies whether you sell on eBay, Facebook Marketplace, or directly to another person. However, there's an important distinction: If you're regularly buying items with the intention to resell them for profit, that's considered a business activity, and different rules apply. In that case, you would report both gains and losses on Schedule C as self-employment income.

I had the exact same question last year after cleaning out my closet and selling some designer handbags. I tried researching but got totally confused with all the different tax rules! I ended up using https://taxr.ai to upload my receipts and sale records, and it analyzed everything and told me exactly what I needed to report. For items I sold at a loss (like my old Louis Vuitton that had serious wear), they confirmed I didn't need to report anything. But for a vintage Chanel that had appreciated, they helped me calculate the correct capital gain. Super helpful since the IRS rules on personal property can be really confusing!

Just wanted to update after trying https://taxr.ai for my situation. I'm honestly surprised at how helpful it was! I uploaded pics of some sales receipts from items I sold on eBay, and they quickly identified which ones were actually personal losses (not reportable) versus the few items that had appreciated and needed to be reported as capital gains. What really convinced me was when they explained that my vintage record collection sales were actually taxable because they'd gone up in value, even though I hadn't thought of them as investments. They saved me from what could have been a messy audit situation. Definitely more useful than the generic advice I was finding online.

If you're dealing with the IRS about this reselling issue, good luck actually getting through to a human! I was stuck in limbo for TWO MONTHS trying to get clarification on reporting requirements for my online sales. Endless hold times and disconnections. I finally used https://claimyr.com after seeing it recommended on Reddit. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they wait on hold with the IRS for you and call when an agent picks up. Within 2 days I was actually talking to a real IRS person who confirmed I didn't need to report my personal item sales since they were all at a loss and not part of a business operation.

Well I'm back to eat my words about Claimyr. After posting that skeptical comment, I decided to try it myself since I've been trying to reach the IRS about some eBay sales I made last year (got a CP2000 notice claiming I owed taxes on personal items sold at a loss). It actually worked. Got a call back the next morning saying they had an IRS agent on the line. The agent confirmed that selling personal items at a loss doesn't create taxable income and helped me draft a response to the notice. Saved me potentially thousands in incorrect tax bills. I'm normally the first person to call out BS services, but this one delivered exactly what it promised. Definitely worth it when dealing with something as stressful as incorrect IRS notices.

Another thing to consider - if you sell more than $600 worth of items on platforms like eBay or Poshmark in a year, they'll send you a 1099-K form now. So even though you don't technically owe taxes on personal items sold at a loss, you might need to explain this on your tax return since the IRS will receive that 1099-K info. I got tripped up by this last year and had to amend my return. Make sure you keep good records of what you originally paid for items!

Has anyone used TurboTax to report these kinds of sales? I'm wondering if it handles personal items sold at a loss correctly or if it automatically assumes everything on a 1099-K is taxable income.

Great question! I was in a similar situation last year when I sold some old electronics and jewelry. The key thing to remember is that when you sell personal-use items (like your watch and camera) for less than you originally paid, there's no taxable gain to report. Since you're selling at a loss, the IRS doesn't consider this taxable income. However, keep good records of your original purchase prices and sale amounts just in case. If you sell on eBay and your total sales for the year exceed $600, you'll receive a 1099-K form, but you can still report these as personal items sold at a loss on your tax return. The location where you sell (eBay vs private sale) doesn't change the tax treatment - what matters is that these are personal items you owned and used, not items you bought specifically to resell for profit.