Advice on estimating costs

Selling personal belongings on eBay can have tax implications, but your situation involves unique challenges due to the age of the items and lack of records. Here's how to approach this:

1. Tax Implications of Selling Personal Belongings

Sales of Personal Items for Less than Original Cost: If you sell an item for less than your original purchase price, this is considered a nondeductible personal loss. Even though you may estimate a $10,000 loss on your collector cars, the IRS does not allow deductions for losses on personal-use property.
Sales for More than Original Cost: If you sell an item for more than what you paid, the gain is considered taxable income, potentially subject to capital gains tax. For collectibles like cars, the tax rate on long-term capital gains can be as high as 28%.

2. Estimating Your Cost Basis

If you don’t have receipts or documentation for the original purchase price, you can estimate your cost basis using reasonable evidence and documentation. Here’s how:

Use Comparable Market Values

Look at the market value of similar items at the time you purchased them. For example, review historical prices or catalog data from auction sites, collector records, or other references available online.

Repair and Restoration Costs

If you made improvements to the cars (e.g., repairs or restoration), include these costs in your basis. Since you lack receipts, reconstruct the expenses using any supporting documentation, such as old photos of the car pre- and post-restoration, credit card statements, or invoices from vendors (even if partial or recreated).

Provide Reasonable Evidence

The IRS requires a good faith effort to calculate your basis. Document your estimates clearly, even if they're approximations, and include a written explanation of your methodology.

3. IRS Assumptions When Records Are Absent

If no records or reasonable estimates are provided, the IRS could assume your cost basis is $0. This could result in the entire sales price being treated as taxable income. To avoid this:

Prepare documentation showing your effort to reconstruct your basis (e.g., printouts of similar eBay sales from 25 years ago, appraisals, or archived pricing guides).

4. Collector Cars: Special Considerations

For the collector cars specifically:

Prove Ownership Duration: Gather any evidence that shows you've owned the cars long-term, such as title history or vehicle registration documents.
Depreciation Exclusion: Personal-use property, such as collector cars, is not depreciated for tax purposes unless used for business. If these cars were only for personal enjoyment, the sale may not trigger gains unless sold for more than their purchase price plus restoration costs.

5. Reporting Sales

On your tax return:

Report sales that result in gains on Schedule D (Capital Gains and Losses) and Form 8949.
For items sold at a loss, you generally don’t need to report the transaction since the loss is not deductible.

6. Recordkeeping Going Forward

To avoid similar issues in the future:

Keep detailed records of all sales, including descriptions, sale prices, and any associated costs (e.g., shipping, eBay fees).
Use digital tools like spreadsheets or apps to document item details and history.

7. When to Seek Professional Help

Given the complexity and the potential size of the transactions ($10k loss estimate), consulting with a CPA or tax professional is advisable. They can:

Help you accurately reconstruct the basis for your items.
Ensure compliance with IRS guidelines.
Optimize tax reporting to minimize your liability.

Summary

Losses on personal property (e.g., collector cars) are nondeductible.
Gains from sales are taxable, but you can reconstruct a reasonable cost basis using historical data and supporting evidence.
The IRS may assume a $0 cost basis if no records are provided, so make a good faith effort to estimate and document your costs.
Seek professional advice to ensure compliance and avoid overreporting taxable income.