Do You Have to Pay Tax on Furniture You Sell?

Selling furniture, whether as a business or an individual, involves tax implications that influence financial outcomes. Understanding how the IRS treats these transactions and meeting related obligations is crucial.

Depreciation for Business Purposes

For businesses, furniture is considered a capital asset and can be depreciated over its useful life, providing annual tax deductions. The IRS typically uses the Modified Accelerated Cost Recovery System (MACRS), under which furniture is classified as a seven-year property. This means the cost can be spread over seven years for tax purposes.

The depreciation method chosen can impact financial statements and tax liabilities. For example, the double-declining balance method under MACRS allows larger deductions in the early years, reducing taxable income initially but resulting in smaller deductions later. Alternatively, businesses may use the Section 179 deduction, which permits immediate expensing of eligible assets, including furniture, up to a limit. For 2024, the maximum deduction is $1,160,000, with a phase-out threshold of $2,890,000. However, the expensed amount cannot exceed the business’s taxable income for the year.

Potential Gain or Loss When Selling

When furniture is sold, the financial outcome depends on the selling price relative to its adjusted basis, which equals the original purchase price minus accumulated depreciation. A sale above the adjusted basis results in a taxable gain, while a sale below it generates a deductible loss.

For example, if a piece of furniture that originally cost $10,000 has $7,000 in accumulated depreciation, its adjusted basis is $3,000. Selling it for $5,000 results in a $2,000 gain, which is taxable as ordinary income. Conversely, selling it for less than $3,000 would result in a loss, which could offset other taxable income.

Tax implications differ for personal-use furniture, which is not depreciated. Losses from selling personal items are not deductible, while gains may be taxable depending on the circumstances. Notably, exclusions like the $250,000 exemption for primary residences do not apply to furniture.

Documentation and Recordkeeping

Accurate documentation is vital for compliance with tax obligations when selling furniture. The IRS requires records to substantiate figures on tax returns, including purchase receipts, sales invoices, and proof of improvements or repairs, all of which establish the adjusted basis.

For businesses, organized recordkeeping simplifies accounting and ensures accurate calculations of taxable gains or losses. Using accounting software can help track depreciation and other financial details. Businesses should reconcile their records with financial statements regularly to maintain accuracy. The IRS recommends retaining records for at least three years from the date the tax return was filed or two years from the date the tax was paid, whichever is later. For depreciated assets, retaining records for the asset’s entire lifespan plus an additional three years is advisable.