1099-NEC for single consigned art sale? (asking as consignor)

[userID_204]

I contracted with a gallery to sell a single inherited collectible on consignment. It was sold for more than $600 above the cost basis (valuation as of inheritance).

My assumption was that I would report this/pay for it as a long-term capital gain off of the cost basis. However, I've received a 1099-NEC from the gallery (for the amount I was paid—ie, sale price minus gallery's percentage).

It seems like this means I have to file like I am running a business, which I am not in any sense of the word. Did I get the wrong form/am I misunderstanding? Should they have issued a 1099-Misc or a different form? Any advice appreciated.

[MaryK4 · Accepted solution]

You can report the sale as a capital sale- you are not responsible just because you received the incorrect form from the gallery.  It is possible that the 1099-NEC would work with a gallery-type sale.  The most important thing is that you report correctly on your tax return.  

To enter as an investment sale:

Under Federal Wages& Income, select Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B) under Investments and Savings.

1. Did you have investment income in 2024? YES
2. Let's import your tax info  Enter a different way
3. OK, let's start with one investment type Other Continue
4. Tell us more about this sale  199-NEC Continue
5. Now, enter the sale information and Continue

[userID_204]

Thanks. So, to be clear, you'd recommend simply using "1099-NEC" as the "Enter the name of the person or financial institution that brokered this sale?" Or perhaps "1099-NEC [[Consigner Business Name]]" instead?

I have a related question re state taxes on the same form. The consigner (payer) was in one state; I live in another. The consigner filled out the 1099-NEC with box 6 (State/Payer's state no.) as my state. Should I enter this as the "State Name" on the page where I enter transaction info/is that needed?

I believe that I probably owe taxes in the payer's state, based on my understanding of state-based income and income thresholds for that specific state. So, I expect I should fill out that state's return accordingly? I just want to make sure I'm not going to get dinged by one state or another because that field is filled in.

Many thanks!

[PatriciaV]

Yes, use the name of the consignment business for the source of the 1099-NEC. The state section (if any) on the 1099 should be where the income was generated, not your home state.

And, yes, you may need to file a nonresident state income tax return for the net income from the sale. You might check with the state to see if the amount exceeds the minimum to file a state return. Here's a list of State Departments of Revenue.

[userID_204]

What problems might it cause if the 1099-NEC has the wrong state field—how important is it that I get that corrected? As long as I'm reporting it to the states on the returns properly, I assume it's OK?

[AmyC]

You earned income in the state where it was sold and you have your resident state. It should not have another state listed besides one or both of those. 

If it has a random state listed, and you meet filing requirements, be prepared to show that the state is not in any way related to this - if they decide to ask where there share of the tax is. You clearly won't file a return that is not the sale or residence state.

[userID_204]

Got it - it's my resident state, so I guess it's OK. I had expected it to be the state where the sale occurred (where I am having to file a nonresident return), but since the income is getting reported/taxed to my resident state seems OK. Thank you!

[AmyC]

Yes, be sure you prepare the nonresident state first to create the tax liability. Then when you do your resident state, you will get a credit for the double taxed income. You get credit for the lower state tax on the lowest taxable amount.

• Each state calculates taxable income differently. 
• Each state has its own tax rate/ system.
• You get the lowest of both categories as a tax credit.

[userID_204]

Yup, definitely doing so. Thanks!!