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eBay 1099-K – How to enter 8949 Adjustments to Gain?

hit_4_show

I entered my eBay 1099-K as follows.

Income -> Your Investment and Savings Accounts -> Add Another Investment -> Personal Items (1099-K) -> Summary ->

Selected “Long Term” . Entered 1a (Gross amount) in Sales Proceeds. Entered Cost Basis (sum).

Save and Continue -> Continue ->

Then I attached my 8949 additional statement for the eBay 1099-K, which has significant adjustments to gain to account for fees, refunds, and shipping.

This is apparently not the correct route to take as I was never provided an opportunity to enter the adjustments anywhere in FreeTaxUSA, so the software can move the sum of all my individual eBay transaction adjustments to the 8949 Part II column (g) cell for the eBay 1099-K entry.

How do I enter the eBay 1099-K in a manner that allows for the adjustments to be reflected on Form 8949, and therefore on Schedule D in column (g) adjustments? As of now, my Net Long-Term capital gain on Schedule D is incorrect (too high) because the gain adjustment for all my eBay transactions is not entered.

Thank you.

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hit_4_show

I will answer my own question. Do not enter as if it is a 1099-K. Enter it as if it is a 1099-B, following the prompts for a stock or mutual fund sale. Then, while still summarizing, you can enter the summed cost basis and summed adjustment to gain. The gain adjustment is achieved by indicating there are sale (stock) fees or expenses. Enter the gain adjustment. Upload the pdf statement with all the individual transactions when prompted. Once complete, you can preview Schedule D and Form 8949. My review of the preview showed Form 8949 and Schedule D were correct, with the appropriate Proceeds; Cost basis; Adjustment codes “EM”; and Amount of adjustment for the eBay 1099 entry on 8949. The information was properly carried from the 8949 to Schedule D.

MatthewD

Hi Hit_4_show,

Was this for the sale of personal items at a gain? I never really understood the context of why enter the income reported on a 1099-K as an investment sale.

hit_4_show

Gain: yes, at least as best as I can document item basis. Lots of personal items, acquired over decades from various sources at widely varying costs relative to FMV at time of original acquisition. No documentation, **** history, etc to substantiate basis for most items. So, set basis to $0 on most.

The IRS provides quite specific advice/instructions, through its website, on how to handle 1099-K’s generated from online payment platform transactions, though it took me a long time to find all the relevant information and understand it.

I entered as an “investment gain”, specifically stock/mutual fund sale route, in the context of FreeTaxUSA, to simply get the correct numbers to the correct cells on specific IRS tax forms, as required by the previous IRS advice/instructions. Specifically, Form 8949 and Schedule D. I do not know of there are other routes to take during the FreeTaxUSA “interview” to get the correct numbers to Form8949 and Schedule D. I hated claiming any capital gains on personal item sales, but that appeared to be the safest option given my specific circumstances. This is especially so as I am confident there was actually a loss on many of the items; albeit with no proof.

GeorgeM

Hello hit_4_show:

From your post it appears you have already entered your sales of personal items for which you received a 1099-K, and may have already filed your tax return. Therefore, we will just add a few comments for your consideration should you need to re-visit these sales and make any changes.

Your approach of reporting the sales in our Investments and Sales section was the correct one to some extent. Anytime a taxpayer sells something that is a capital asset, and the capital asset was sold at a gain, that gain needs to be reported on the same form(s) where taxpayers report the sale of securities, such as stocks, bonds, mutual funds, etc. A capital asset can be anything of value, and personal property such as your personal items qualify as a capital asset.

Going forward, the preferred method to report the sale of personal items sold at a gain in which the taxpayer receives a 1099-K is to select the option for Personal Items (1099-K), rather than selecting the option for Stock Sales 1099-B, or any of the other options in the Investments and Savings section. When entering the sale of personal items sold at a gain, any fees, delivery charges, or other costs associated with the sale can be added to the cost basis. After all of the cost and sales proceeds information has been entered, the personal property item(s) sold at a gain will appear on Form 8949 as well as Schedule D.

Reporting the sale of personal property items as a stock sale appears to have generated the adjustments codes EM that are appropriate in connection with the sale of securities and are not relevant with regard to the sale of personal property items sold at gain.

A loss from the sale of personal property is treated differently under the tax code. Such losses are not deductible but nonetheless are reported on Schedule 1 and appear at the top of that form as more of an information item for the IRS because the IRS needs to be able to connect the loss with the amount reported on a 1099-K.

Personal property items sold at a loss where the taxpayer has received a 1099-K, are reported in the 1099-K section and on the appropriate screen, select Yes when asked was the property sold at a loss. The loss will appear on Schedule I at the top of that form and will not impact at all the tax return.

Also, if you need further assistance you can contact our Customer Support Team. To do so, select the Support tab in the upper right corner of your screen, and in the drop down select Support Center. Any tax information you provide our Customer Support Team will remain secure.

hit_4_show

GeorgeM,

Thank you.

Seeking clarification and/or confirmation.

You are suggesting adjusting the basis directly as opposed to adjusting the gain/loss? It seems an 8949-style summary statement will still be requested for the ebay 1099k when completing a return through FreeTaxUSA. Let us assume the summary statement mirrors Form 8949, as that is what I did for the summary statement. I simply cut and pasted from the IRS form into a spreadsheet. My summary statement has the exact same column labels as an IRS form 8949. Sum any eBay fees, shipping cost, return cost, refund, etc for a specific transaction. Add those fees to basis to create an adjusted basis. In my case, for “safety”, I set basis to $0 for almost all transactions. Enter the adjusted basis in column (e) Cost or other basis…. for that transaction. For that transaction, leave both columns (f) Code(s) from instructions and (g) Amount of adjustment blank. Columns (f) and (g) are for reporting gain/loss adjustments for a transaction: both type of adjustment (f) and amount (g). The sum of all cells for column (e) Cost or other basis…. on this summary statement will be the cost basis entered into FreeTaxUSA when prompted for cost basis for the eBay 1099k. Is this all correct? If so, can you direct to IRS documentation that specifically states to adjust the basis as opposed to the gain/loss?

It appears following your method and the method I used both yield the same amount on Schedule D Line 15, although I accept IRS might reject one method in an audit. Though I do not intend to amend the 2024 federal return, I will adjust my 2025 record keeping if it appears I completed improperly the 2024 eBay 1099k summary statement incorrectly, and therefore Form 8949 and Schedule D. I want to generate my 2025 eBay 8949 summary statement throughout the year as transactions occur, so it is already complete at end of TY 2025. If I accept that your proposed method is consistent with IRS instructions, I will follow that method for TY2025.

RyanZ

Hello hit_4_show:

GeorgeM has provided me with some clarifying information to his recent post, specifically with factors to consider to determine if your selling activity is a business or a hobby; after wards, I will address your specific question about recording adjustments to basis in your most recent question.

We need to clarify and modify our prior post regarding the adjustments you made to your gain based on the fees and shipping costs you paid. Adjustments of this type only work in a situation where your sales were done in connection with a business activity. If your sales through eBay were not part of your business—a business of selling items through eBay or other third parties—then the IRS will deem your sales to be the functional equivalent of a hobby. Expenses incurred in connection with hobby income/activities are not deductible.

Here is web address to an IRS web page that explains the difference between a business and a hobby which you might find helpful:

https://www.irs.gov/newsroom/heres-how-to-tell-the-difference-between-a-hobby-and-a-business-for-tax-purposes

If you believe that your sales through eBay qualify as a business, then you should report your 1099-K information on a Schedule C, Profit of Loss from Business. As a business, your sale expenses would be deductible as a business expense.

Assuming your sales effected through eBay are fairly characterized as hobby income, then you may need to amend your tax return and remove any adjustments you made for selling expenses because such expenses would not be deductible. In other words, you would report your 1009-K on Form 8949 and Schedule D as you have already done, without any codes/amounts in Column (f) or Column (g).

As mentioned in our prior post, the way to report your 1099-K is to select the option for Personal Items (1099-K) in the Investments and Savings section. You mentioned that given the passage of time and the lack of documentation, you had to enter a $0 cost basis for the items sold, and unfortunately, that may be the only option you have.

Response regarding your question about recording adjustments to basis:

You will track the basis plus adjustments to the basis. The mathematical equation for reporting the gain/loss is: Proceeds - Adjusted Basis = Gain/Loss

Rewriting the equation produces the same result, but you still must know what your adjusted basis is before calculating the gain/loss: Proceeds - Gain/Loss = Adjusted Basis

From the form 8949 Instructions (https://www.irs.gov/instructions/i8949#en_US_2022_publink1000285294)

Basis and Recordkeeping

Basis is the amount of your investment in property for tax purposes. The basis of property you buy is usually its cost. You need to know your basis to figure any gain (or loss) on the sale or other disposition of the property. You must keep accurate records that show the basis and, if applicable, adjusted basis of your property. Your records should show the purchase price, including commissions; increases to basis, such as the cost of improvements; and decreases to basis, such as depreciation, nondividend distributions on stock, and stock splits.

For more information on basis, see Column (e)—Cost or Other Basis, later, and the following publications.

Pub. 550, Investment Income and Expenses.
Pub. 551, Basis of Assets.

If you lost or didn't keep records to determine your basis in securities, contact your broker for help. If you receive a Form 1099-B (or substitute statement), your broker may have reported your basis for these securities in box 1e.

hit_4_show

Thank you for the assistance. I have read the previous 2 – posts many times. I have reviewed many times the IRS tax tip assisting in differentiating hobby and business. I have been reviewing my situation over the last couple weeks, and began the amended returns as a business, but am not certain that is correct.

Questions

Are we in agreement that amended returns are required whether the sales activities were hobby or business?

I had 150+ eBay transactions last year; expect to have 50-100 this year; and less in subsequent years. Most or all sales were/are personal items, and are connected with estate size reduction; getting rid of items I do not want. Last year, I put a lot of time into the sales, but very much dislike the entire sales process. I am attempting to “make as much money” as possible off the sales, and am doing so in a methodical manner. Though I have few records of the acquisitions of these items sold, I am trying to maintain good sales records to support my income tax return filings. Based on this information, does it seem reasonable to classify the sales as business rather than hobby?

If I file as a business, I will use the cash method of accounting. I do not intend to keep inventory. I can only document cost of acquisition for a few items sold, but I still want to “deduct” those minimal costs. Do the acquisition costs (purchase prices) get entered in Schedule C Part III Line 38 or Part II Line 22?

If filing as a business, on what line do eBay transaction fees get entered? Based on the interview, it seems like FreeTaxUSA enters them in Line 2 Returns and Allowances. This does not seem consistent with the Schedule C instructions.

Where do outbound shipping costs get entered if filing as a business? Please explain where in the interview it gets entered, and the corresponding Schedule C line.

If filing as a hobby, is it correct I will simply need to eliminate the eBay 1099-k as a stock/mutual fund sale. Instead, it will be entered as Personal Items (1099-K), which will only allow reducing the capital gains by providing the very minimal, documentable cost basis? No “deduction” for eBay fees, shipping labels, office supplies, etc will be allowed?

Thank you for your help.

MatthewD

Hi hit_4_show,

You asked, "Are we in agreement that amended returns are required whether the sales activities were hobby or business?" An amendment is required regardless, if you have changes to your previous return filed.

You also ask, "Does it seem reasonable to classify the sales as business rather than hobby?" It depends. If you are reporting losses, then it would be more reasonable to classify as a hobby where losses are not allowed. However, if you are reporting gains and revalue the inventory items using some sort of "thrift" method, then it would be reasonable to report the sales as business income. You will need to value each item sold so it shows a gain. Keep in mind that you will pay self-employment taxes.

If you file as a business, the acquisition costs (purchase prices) get entered as supplies using a reasonable valuation method, like thrift value.

Transaction fees should NOT be enter as a return or allowance. That is for returns or discounts. Enter it as a Fee or Misc. Expense.

Enter shipping as an Office Expense.

Let me explain when you report a sale of a personal item as a capital gain. When you sell a collectable. For example a toy, that you kept in the original packaging. Like the once popular Cabbage Patch dolls. Otherwise you report the sale of personal items from hobby sales as Other Income.

I just want to say you can report this how you would prefer, since it isn't really cut and dry. However, if you report it as business income, report income, not losses.

hit_4_show

There seems to be considerable difference of opinion in this thread on whether the eBay 1099-k can be reported on Schedule D and Form 8949; needs to be reported on Schedule 1 Line 8 (hobby); or needs to be reported on Schedule C (business) Line 1 with the income flowing to Schedule 1 Line 3. Complicating the issue(s) is determining the cost basis for personal items sold (inventory valuation) as these items were acquired over the span of decades with little to no original documentation of purchase price; and the length of time over which I will continue to sell off unwanted personal items. I had an eBay 1099-K for 2024, and will for 2025. It seems 3 – years of reporting a profit would tend to make it prudent to file as a business. However, filing as a business without being able to claim a significant Schedule C Line 38 Materials and Supplies expense generates enough tax liability that the sales are a waste of my time. I would likely be better off just giving away the unwanted personal items. This is not a complaint, but rather a pragmatic reevaluation of how I want to dispose of remaining, unwanted personal items. I appreciate the assistance and will continue to evaluate my options: including how specifically to amend my 2024 returns; and whether and how to continue sales of unwanted personal items. Thank you.