Contributed by: Henry, FreeTaxUSA Agent, Tax Pro
If you sell a personal item (such as a used car, furniture, or clothing) for less than you originally paid for it, you don't need to report it on your tax return. This is because losses on the sale of personal-use property are neither tax-deductible nor included as income. However, you might get a Form 1099-K from a payment app or online marketplace if you received payments for goods you sold. If that happens, the IRS expects you to account for the income reported on the 1099-K, as they also receive a copy of the form.
How can you report the 1099-K without it affecting your return? Here's what the Form 1040 instructions say on page 6 under Changes to reporting amounts from Form 1099-K:
"Beginning in 2024, if you received a Form 1099-K that shows payments that were included in error or for personal items sold at a loss, you will now enter these amounts in the entry space at the top of Schedule 1."
To enter this type of transaction in FreeTaxUSA software:
- Follow the menu path: Income > Business Income > 1099-K Income
- Indicate who sent you the 1099-K and answer the question at the bottom of the screen
- On the following page, answer "Yes" for personal transactions
- When asked "Were any of your 1099-K personal transactions the sale of a personal item sold for a loss?" answer "Yes". Then enter the total payments received from the sale.
Now you should be good to go. You'll be able to review Schedule 1 when you get to the Summary screen (scroll to the bottom and click to view the return). You should see the amount from your 1099-K reflected in the field directly below your SSN.
This entry will correctly account for the proceeds from the sale without affecting the income or loss on your return.
If you have kept a record of the original cost of the item you sold, it may be a good idea to keep a copy of that with your tax records in case the IRS has questions about what you claimed on your tax return in the future.