Key takeaways
Selling personal items at a loss usually isn’t taxable, but profits from resale may need to be reported as income.
If you regularly resell items for profit, the IRS may treat it as self-employment income.
Resale platforms often collect sales tax for buyers, but you’re still responsible for reporting your earnings.
I started by cleaning out my closet.
A blazer I hadn’t worn in years. Boots that looked great but were impossible to walk in. A bag I bought on sale and never actually used. Listing them on Poshmark felt like a win-win. Less clutter and a little extra cash.
By the end of the year, I’d made a few thousand dollars between Poshmark and other resale apps. It felt good to finally get some money back for things I no longer used.
Then tax season rolled around, and I started wondering whether that money actually counted as income.
Here’s how it works.
Selling personal items at a loss usually isn’t taxable
If you sell your own clothes, shoes, or accessories for less than what you originally paid, that’s generally not taxable income.
For example, if you bought a jacket for $200 and sold it for $75, you didn’t make a profit. You sold it at a loss. Losses on personal-use property aren’t deductible, and since there isn’t any income, it is not taxable.
So if you’re mostly reselling items for less than retail, you may not owe income tax on that money.
Making a profit makes it taxable
Things change if you sell items for more than you paid.
Let’s say you grabbed a designer piece at a thrift store and flipped it. When you buy items specifically to resell them for profit, that’s usually considered self-employment.
You’ll only be taxed on the profit left over after expenses, which might include:
The original cost of the item (cost of goods sold)
Platform fees
Shipping supplies
Packaging materials
Mileage to source or ship items
It’s not about whether you think of it as a business. It’s about whether you made money, and how much.
The $400 profit rule explained
If you make $400 or more in profit (income minus expenses) from reselling, you’re required to file a tax return and pay self-employment tax on your earnings.
Self-employment tax covers Social Security and Medicare contributions when you don’t have an employer withholding and matching them. You’ll compute that on Schedule SE.
That’s often the part casual resellers don’t see coming. Once you cross that $400 profit line, it’s treated like business income.
How to report resale app income on your taxes
If you regularly buy items to resell for profit, the IRS generally considers that self-employment income. You’ll typically report those earnings on a Schedule C, where you can also deduct expenses like platform fees, shipping supplies, and the cost of the items you sold.
Keeping records of what you paid for items and what you sold them for can help you accurately report your profit.
How sales tax works on resale apps
Income tax and sales tax aren’t the same thing.
Income tax applies to the profit you earn. Sales tax applies to the transaction itself and usually depends on where your buyer lives.
Most states now have marketplace facilitator laws. That means resale platforms typically collect and send sales tax to the state for you.
So in many cases, you don’t have to calculate or collect sales tax yourself; the platform handles it automatically. But since sales tax rules vary by state, it’s still worth checking your state’s department of revenue website to see what applies to you.
Why this matters
There’s a real difference between clearing out your closet and running a profitable resale side hustle.
Knowing where you fall helps you report accurately and avoid surprises later.
Selling on Poshmark, Depop, or Mercari? Use our Self-Employment Tax Calculator to estimate what you might owe before you file.
