1099-K Personal Items Sold at a Loss: Report It, Prove Cost Basis

Do I have to report a 1099-K for personal items sold at a loss?

Yes, the form amount has to be accounted for on the return. The IRS says there is no tax liability on personal items sold for less than you paid, but a loss on a personal item cannot be deducted, so you offset the reported amount rather than claim the loss (IRS: What to do with Form 1099-K). The IRS also receives a copy of the form, so an amount left unexplained can look like unreported income.

A simple case is a few old items sold once, with a record of what you paid. A case stops being simple with forms for several years, items bought to sell, selling often, an IRS notice, or thin proof of cost on large amounts. Gather every 1099-K, the platform's sales report for the year, and a list of each item with its sale price and what you paid.

Can I deduct a loss on a personal item?

No. Things you own for personal use, like furniture or a stereo, are capital assets (the tax word for most property you own), and a loss from selling one is not deductible, except a casualty or theft loss (Publication 544; Topic 409).

The loss does not reduce other income, including other sales on the same form. The IRS says a loss on one item cannot offset a gain on another (IRS: common situations).

How do I stop the 1099-K amount from being taxed?

The IRS names two ways: enter the sale amount in the entry space at the top of Schedule 1, or list the sale on Form 8949 with code L. Use one method for any given sale. The Schedule 1 route reports one total, so you keep the item list and cost proof yourself; the Form 8949 route reports each sale and its cost, so it needs the cost of every item (Form 1040 instructions; Form 8949 instructions).

Entry space at the top of Schedule 1 (Form 1040)

1. Add the box 1a amounts that were for personal items sold at a loss. If the whole form was loss sales, use the whole box 1a amount.
2. Enter that total in the entry space. It is the gross amount the form reports for those sales, not the size of the loss.
3. Report any remaining amount on the form where it belongs, depending on what it was.

Several forms from different platforms are added together and entered as one combined amount (IRS: common situations; Form 1040 instructions). The latest Form 1040 instructions and the draft Schedule 1 for the following year both use this entry space; confirm it when the final form is out. For 2022 and 2023 the IRS method was line 8z for the form amount and line 24z for the offset (or both amounts on line 8z); from 2024 on it is the entry space (IRS: common situations). For an earlier year, follow that year's instructions.

Form 8949 with code L

For each item, enter the net proceeds (sale price less selling costs) in column (d), your cost in column (e) (for a gift or inherited item, the basis explained below), L in column (f), and in column (g) the loss as a positive number, which is the adjustment that makes column (h) zero. Put each row in Part I with box C checked if you held the item one year or less, or in Part II with box F if longer, because no Form 1099-B was issued. Inherited items go in Part II whatever the time held, and a gift can carry over the giver's holding period. The Form 8949 instructions generally say not to list a personal-property loss on that form but make this exception for a 1099-K. It is the alternative to the entry space, and it is where gains on the same form are reported.

What counts as a personal item, and when is it a business sale?

A personal item is something you owned for personal use, such as a car, furniture, a stereo, jewelry or silverware (IRS: What to do); the IRS FAQs add event tickets bought for your own use. Goods you buy to resell are different: property held mainly for sale to customers in a business is not a capital asset (Publication 544).

Property you held to make money, such as coins or cards bought as an investment, is also different. A loss on it is a capital loss, reported on Form 8949 and Schedule D and limited each year, not a personal-item loss (Publication 544; Topic 409). Whether a collection was held for personal use or as an investment depends on the facts, so a preparer should decide.

Something you also used for work or rent, such as a laptop, camera, tools or a vehicle, is not purely personal. Its gain or loss is figured separately for the business or rental part and the personal part, and depreciation you took or could have taken lowers the cost of the business part. A loss on the personal part is not deductible. Only the personal part belongs in the entry space or under code L, so a preparer should split it (Publication 544).

Whether repeated selling is a business or a hobby depends on the facts, not one test. The entry space and code L are for personal items only. The hobby or business guide covers the line and the records each side needs.

How do I prove my cost basis when I have few receipts?

Rebuild what you paid from the best evidence you can find, write down how you did it, and keep it with the return. Cost generally means what you paid, including sales tax, freight and installation (Publication 551). The IRS suggests asking the bank or card company for old statements and asking the seller for their records (IRS FAQs).

The same IRS answer says that if records are lost, destroyed or unavailable for reasons beyond your control and the return is audited, examiners may allow reconstructed records, and may accept oral testimony when no records exist. That is "may", not "will", and the IRS pages do not say an unsupported estimate is enough.

When an item clearly cost more than it sold for, the entry-space amount is the sale price either way, so the exact cost matters less. Proof matters most when cost and sale price are close, when the amounts are large, or if the IRS asks how you know an item was a loss. Keep the records until the time limit for the year of the sale ends: generally three years after you file, six years if the return left out income of more than 25% of the gross income it showed, and no limit if no valid return was filed (Topic 305).

What is my cost if the item was a gift or inherited?

For a gift, your cost is generally the giver's adjusted basis, with a lower-value rule, except that an item transferred to you by your spouse (or former spouse in a divorce) uses your spouse's adjusted basis with no lower-value rule (Publication 551). For other gifts, if the item was worth less than the giver's basis when given, you use the giver's basis to test for a gain and the lower value at the gift date to test for a loss. A sale price between the two is neither gain nor loss (Publication 551). The IRS 1099-K pages cover the clear loss and the clear gain, not this middle case, so a preparer should decide how to show it. Ask the giver what they paid, and note the gift date and value.

For an inherited item, your cost is generally its fair market value on the date of death, or on the alternate valuation date if the estate chose it. If the estate had to file a federal estate tax return, the executor generally sends you a Schedule A (Form 8971) showing the value, and some heirs must use it as their starting cost. Without one, the appraised value used for state inheritance or transmission tax can be used (Publication 551). On Form 8949, inherited property generally goes in Part II with "INHERITED" in column (b); if the cost is not your actual purchase price, the instructions ask for an attached explanation (Form 8949 instructions).

What if some items sold at a gain and others at a loss?

Report gains and losses separately: each gain goes on Form 8949 and Schedule D, and only the loss sales go in the entry space at the top of Schedule 1, or on Form 8949 with code L (Form 1040 instructions).

An item held more than one year produces a long-term gain; one held for a year or less produces a short-term gain, taxed as ordinary income (Topic 409). Inherited items are treated as held long-term, and a gift can carry over the giver's holding period when your cost is figured from the giver's basis (Publication 544). Gains go in the same Part and box as loss rows (Form 8949 instructions).

The gain or loss is the sale price, less the fees and shipping you paid to sell, minus what you paid. Those selling costs are not income and can come off the gross amount (IRS: What to do); on Form 8949, net proceeds are the sale price less selling expenses (instructions).

Why is the 1099-K more than the prices of my items?

Box 1a is a gross figure. It is not reduced for fees, credits, refunds, shipping, cash equivalents or discounts, and the IRS says those items are not income (Instructions for Form 1099-K; IRS: What to do). It also does not show what you paid or whether any sale was a gain or a loss (IRS FAQs).

Compare the form with the platform's sales and payout report. Look for refunded orders, shipping the buyer paid, fees, and money that was not a sale. The reconciling guide shows how to tie a sales report to the form and the payouts. If every sale on the form was a personal item sold at a loss, the Form 1040 instructions say to enter the total box 1a amount. If only part was, enter only that part. If the form total itself is wrong, see the wrong or corrected form guide.

Why did I get a 1099-K, and what if I got none?

Under federal rules, a payment app or online marketplace must send a form when payments for goods or services exceed $20,000 in more than 200 transactions, but it may send one for less, and some states set lower limits. A card processor has no minimum (IRS: Understanding your Form 1099-K; IRS FAQs; IRS FAQs, general information). A platform that lacks your Social Security number may withhold backup tax; box 4 shows it, and it counts as tax already paid on line 25b of Form 1040 (Instructions for Form 1099-K; Form 1040 instructions). The threshold guide covers whether a platform had to send one.

Whether a form arrives does not change what is taxable: a gain is reportable with or without one (IRS: Understanding your Form 1099-K). With no form and only loss sales, there is no gain to report, and the entry space is for amounts reported on a form. Keep your own list anyway, in case a form arrives late or a notice comes.

What if the IRS sends a notice about the form?

A CP2000 notice means information from a third party, such as a 1099-K, does not match the return. It is not a bill, and the IRS says the difference may increase the tax, decrease it, or not change it (IRS: CP2000 notice). If the return left the form amount unexplained, the notice can propose tax on it.

Read the whole notice and note the reply date printed on it, generally 30 days after the notice was issued. A reply that shows the list of sales, your proof of cost, and the Schedule 1 or Form 8949 entry that offsets the amount answers this kind of mismatch. The notice response guide covers how to agree or disagree, when an amended return is needed, and what happens if the date is missed.

Example

These examples are illustrative and use US dollars.

Garage clear-out

An online marketplace sends a 1099-K showing US$4,200 for old gear. The gear cost US$9,000, and every item sold for less than its cost. The loss of US$4,800 is not deductible. The return enters US$4,200 in the entry space at the top of Schedule 1; for personal items sold for less than cost, the IRS says there is no tax liability on those sales. The filer keeps the list of items, prices and cost evidence.

Mixed sales

A form shows US$3,000. A guitar bought for US$1,000 sold for US$1,800, a gain of US$800, reported on Form 8949 and Schedule D. Everything else sold for US$1,200 and cost US$3,000, each item below its own cost, a loss that is not deductible, so US$1,200 goes in the entry space. The US$1,800 loss does not reduce the US$800 gain.

Card collection

A form shows US$25,000 from 250 sales of trading cards, above both the US$20,000 and the 200-transaction marks. Some cards were inherited; the estate papers value them at US$12,000, and they sold for US$10,000. Assume they were held for personal use and each card sold below its own estate value. Then US$10,000 goes in the entry space, with the estate papers as proof of cost. Any card sold above its own estate value is a reportable gain, even if the group lost money. The other cards were bought to resell and sold for US$15,000. They are not personal items, so their sales do not go in the entry space. Whether that income is business or hobby income depends on the facts, and the repeat buying and the volume may point toward a business. Because the sales mix personal, inherited and resale cards, a preparer should decide how each group is reported.

Different for you?

• Forms came for several years, or earlier returns left the amounts unexplained or taxed them: each year may need its own review and possibly an amended return. A refund claim generally must be filed within 3 years of filing the return or 2 years of paying the tax, whichever is later (Instructions for Form 1040-X). Get individual tax help to settle what each year should have shown.
• You bought items to resell, sell often, or the volume looks like a business: selling often alone does not make personal belongings resale goods, but the entry space covers only personal items, not goods bought to resell or business or hobby sales. See the hobby or business guide and the cost of goods sold guide; if sales, fees and costs were never written down, see rebuilding records from statements. Get individual tax help to decide personal sale or business, and bookkeeping help to keep those records from here on.
• You have a CP2000 notice: follow the notice response guide and get individual tax help with the reply.
• Proof of cost is thin and the amounts are large: a preparer can help rebuild cost and decide how to show gifted or inherited items; start with individual tax help.
• The items were held as an investment (coins or cards bought to hold) or also used for work or rent: the entry space covers only the personal part of personal items, and an investment loss may count as a capital loss. Get individual tax help to decide how to report it.
• The form is wrong, duplicate or not yours: see the wrong or corrected form guide.
• The form includes gifts, split bills or family money: see the personal payments guide.
• You want the wider picture of income tax on online selling: see the online seller income tax guide.