1099-K for Selling Personal Items

By Lawrence Do, EA | Former IRS Revenue Agent

Got a 1099-K for Selling Personal Items? You May Not Owe Tax

You sold an old laptop, some furniture and a few other things you no longer needed. Months later, a Form 1099-K arrives showing several thousand dollars in payments.

Now it looks like you made several thousand dollars of income.

Did you?

Maybe not.

A Form 1099-K reports payments processed through certain online marketplaces, payment apps and payment card networks. It does not, by itself, determine how much taxable income you have.

If you were simply selling your own used belongings, the most important question is usually what you originally paid for each item compared with what you sold it for.

Selling Used Personal Items at a Loss

Here’s a simple example.

You bought a laptop for $2,000 and used it for several years. You eventually sell it online for $900.

The $900 is money you received, but it isn’t $900 of profit. You actually sold the laptop for $1,100 less than you originally paid.

Because the laptop was personal-use property, you generally can’t deduct that $1,100 loss. But you also don’t have a taxable gain from the sale.

This is where a 1099-K can cause confusion. The form may show the $900 payment without showing that the laptop originally cost you $2,000.

The IRS sees the payment amount. Your tax return needs to provide the proper tax treatment.

What If You Sold Several Things During the Year?

Suppose you cleaned out your house and sold the following:

• A couch purchased for $2,500 and sold for $800

• A television purchased for $1,400 and sold for $500

• A laptop purchased for $1,800 and sold for $700

That’s $2,000 of total sales.

But those items originally cost $5,700, and each one was sold for less than its original cost.

You don’t have $2,000 of taxable profit just because a payment processor reports $2,000 of transactions.

At the same time, you generally can’t deduct the losses on personal-use property.

In other words, selling something for less than you paid usually doesn’t create taxable income, but it doesn’t create a deductible tax loss either.

What If You Sold Something for More Than You Paid?

Now suppose you bought a collectible for $500 and later sold it for $1,200.

That’s different.

You have a $700 gain, and gains from selling personal property are generally taxable.

This is why it’s important to know what you originally paid for the items you sold. The amount shown on the 1099-K is generally the gross payment amount. It doesn’t tell you your cost or automatically calculate your taxable gain.

There’s another detail that surprises people.

Suppose you lose $1,000 selling used furniture but make a $500 gain selling a collectible. You generally can’t use the $1,000 personal loss to offset the $500 gain.

The loss on the personal-use property isn’t deductible.

I Don’t Have My Old Receipts. Now What?

That’s normal.

Most people don’t save a receipt for a couch they bought six years ago because they aren’t thinking about the tax consequences of eventually selling it.

Start with records that may still be available:

• Credit card statements

• Bank statements

• Email receipts

• Online shopping accounts

• Retailer purchase histories

• Other records showing when and where the item was purchased

For higher-value items, it’s worth spending some time trying to reconstruct the original cost.

And if you regularly sell personal items online, start keeping a simple record of the item, what you paid for it and what you sold it for. It can save a surprising amount of work later.

Does a 1099-K Mean the IRS Thinks You Have a Business?

No.

Receiving a 1099-K doesn’t automatically make you self-employed.

Someone selling an old couch, television and computer from around the house is in a very different situation from someone buying merchandise specifically to resell for a profit.

That’s an important distinction because business income may be reported differently and can potentially be subject to self-employment tax.

You shouldn’t automatically put the entire amount from a 1099-K on Schedule C simply because you received the form.

First determine what the payments actually represent.

What About Venmo, PayPal and Other Payment Apps?

The same principle applies.

The payment method doesn’t determine whether something is taxable.

If a friend sends you $75 to reimburse you for dinner, you generally didn’t earn $75 of income.

If your roommate sends you their half of the electric bill, that’s generally a reimbursement rather than income.

If someone buys your used television for less than you paid for it, you generally don’t have a taxable gain.

If a customer pays you $500 for work you performed, that’s income.

All four payments could potentially pass through the same payment app. What matters for tax purposes is why you received the money.

What Is the 1099-K Reporting Threshold?

This has been particularly confusing because the federal reporting rules have changed several times.

Under current federal rules, third-party settlement organizations generally have a Form 1099-K reporting requirement when payments for goods or services exceed $20,000 and there are more than 200 transactions during the calendar year.

That doesn’t mean you can’t receive a 1099-K below those amounts. A payment processor may issue one at a lower amount, and state reporting requirements can differ.

There’s also an important distinction between a reporting threshold and a tax threshold.

The threshold determines when certain payment processors are generally required to issue the form. It doesn’t determine whether income is taxable.

If you earned taxable income, it doesn’t become tax-free because you didn’t receive a 1099-K.

And if a payment isn’t taxable income, receiving a 1099-K doesn’t suddenly make it taxable.

What Should You Do When a 1099-K Arrives?

Don’t panic, but don’t ignore it either.

Start by reviewing the transactions included on the form. If you used the account for several purposes, separate the payments into categories.

For example, you might have:

• Personal items sold for less than you paid

• Personal items sold for a gain

• Business or self-employment payments

• Reimbursements from friends or family

• Payments that were incorrectly reported

For items you sold, determine what you originally paid and compare it with the sale price.

If the form itself is incorrect, contact the company that issued it and ask whether a corrected 1099-K is appropriate.

The goal isn’t to force every dollar on the form into one category. It’s to determine what actually happened and report it correctly.

A 1099-K Is an Information Form, Not a Tax Bill

That’s probably the easiest way to think about it.

The form tells you and the IRS that certain payments were processed. It doesn’t necessarily tell either of you whether those payments represent taxable profit.

If you sold your own used belongings for less than you paid for them, you generally don’t owe income tax simply because money changed hands.

If you sold something for more than you paid, the gain may be taxable.

And if some of the payments were actually for your business or services you performed, those payments may need to be reported differently.

The answer depends on what the transactions were, not simply on the number printed on the 1099-K.

Need Help With a 1099-K?

If you received a Form 1099-K and aren’t sure what should actually be reported as taxable income, Do Tax & Advisory Group, Inc. can help review the transactions and determine the proper tax treatment.

We provide individual tax preparation and tax advisory services for taxpayers throughout Orange County, California.

Do Tax & Advisory Group, Inc.
Tax Preparation & Advisory Services
Orange County, California