If someone receives utems as a gift and later sells it, say on ebay, how does that income get taxed? If it is a capital gain, how is the basis determined? Where would instructions on how to determine tax liability arising from the sale be found in on-line IRS publications?
When you receive a gift, the cost basis is usually the donor's gift basis. If you then sell it at a higher price, you have a capital gain. If you sell at loss, you have a capital loss, but as it is a personal use item the loss is not deductible. If it's a business use item, then the cost basis is the lower of FMV at time of donation or donor's cost basis. If the item is a cheap personal item like a reasonably priced dinner set, reasonably priced toys, then don't worry about anything.
If the item was held at a gain by the giver, your basis is the giver's basis. If the item was held at a loss the item takes on a dual basis of giver's basis and FMV at time of gift: if the item is sold for less than FMV at time of gift, your basis is FMV at time of gift. If item is sold for more than giver's basis, your basis is giver's basis. If item is sold for between those numbers, your basis is what it was sold for.
And of course, if it is a personal use item any loss willl be disallowed.
See IRS Pub 550.
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