Form 1099-K from eBay garage sales cannot be properly reported on Form 1040 Schedule 1 lines 8z / 24z

[mrk06]

For context, see the "Personal item sales" and "Don’t get taxed on non-taxable income" sections in this recent TurboTax article:

Did You Get a Form 1099-K and Aren’t Self-Employed or a Small Business?

Despite the IRS' postponement of lowering the reporting threshold, eBay still sent me a Form 1099-K for garage sales in 2022. On the form, eBay even included a transaction that actually was canceled, resulting in a complete refund to the buyer! But that is a minor issue compared to how to properly deal with such a 1099-K on the personal tax return.

The above article refers to the IRS guidance in this document:

Frequently asked questions about Form 1099-K

At the bottom of page 2 and top of page 3, the IRS provides a simple example of how to properly record a sale of a personal item, which results in a zero gain/loss, on lines 8z and 24z of Schedule 1 of Form 1040. This cannot be achieved in TurboTax Deluxe 2022 desktop edition; follow these steps:

1. Click Forms in the top-right corner.

2. In the "Forms in My Return" on the left, click Schedule 1, which then shows on the right.

3. In Part I, position the cursor on the line just below line 8z "Other Income. List type and amount:" and double-click the highlighted blue area.

4. In another view of Schedule 1 that opens, double-click the blue-highlighted line that has a magnifying glass icon to the left.

5. In the worksheet that opens, under line 12 "Other taxable income:", enter the description which the IRS wants, i.e. "Form 1099-K Personal Item Sold at a Loss". In the taxpayer/spouse fields immediately to the right, enter the amounts attributed to each (the total should match the amount on 1099-K).

6. Click Schedule 1 on the left again and verify that the description and amount entered for line 8z are correct, and that line 9 (which is the total of lines 8a through 8z) is correct, too.

7. Scroll down the right pane and double-click on the line just below line 24z.

8. In the resulting view, double-clicking on the blue field under line 24z has no effect. Instead, right-click on that line, select Override and a blinking vertical-bar cursor appears in the highlighted field. Enter the same IRS description as before.

9. Right-click on the field immediately to the right, select Override and enter the same amount as before.

10. The amount automatically appears on line 24z immediately to the right. But it does NOT appear on line 25, which is supposed to be the total of lines 24a through 24z.

THIS IS A BUG in TurboTax. There is no way to manually enter anything in line 25 (Override is disabled), and there is no corresponding dialog in the Step by Step view to enter the income adjustment for line 24z.

I spent about 1.5 hours on the phone with TurboTax support and they could not solve this. On the forums, the suggested workarounds for reporting such 1099-Ks from garage (i.e. non-hobby/non-business) sales are incorrect because they do not result in filling lines 8z/24z as the IRS wants.

While we are waiting for Intuit to fix the TurboTax, is there any other way to accomplish what the IRS wants?

[mrk06]

To provide further info on this topic, the TurboTax help is inconsistent with the software. The first approach I tried was to enter the 1099-K using the Step by Step view. At the conclusion, the following message appears:

Personal Item Sales

"We've added your personal item sales. You’ll need to enter additional information for your sale in another section. Learn More"

Upon clicking Learn More, the following instructions appear:

"How do I enter personal item sales that were included on this 1099-K?

We’ve collected your 1099-K information, but you’ll need to add more info about your sale in another section.

1. Select Continue on this screen.
2. On the Your 1099-K Summary screen, select Done.
3. From the Income Landing table, navigate to Investment topics, and select Start or Revisit for "Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B).
4. Go to Investments and Savings (1099-B, 1099-INT, 1099-DIV, 1099-K, Crypto) on the Income & Expenses screen. Select Edit/Add. 
5. On Your Investments and Savings Summary screen, you’ll see a line item for your 1099-K income. Select Edit or Review and enter the information for the first personal sale item.
   1. Be sure to select Personal Items under the What type of investment did you sell?
   2. The Cost or other basis amount should be the amount you originally paid for the item.
6. Select Continue when you’re finished to go to the Review your Sales screen.
   • If there was more than one personal item sale included in the 1099-K amount, select Add another sale to add each item.
   • If not, you can Continue.

If you sold your personal item(s) for a loss, that loss cannot offset other income on your tax return like capital loss items (stocks).

If you sold your personal item(s) for a gain, then you’ll need to pay short or long term capital gains tax on it, depending on how long you held the item. This is why you should enter each item separately and not net them together."

I could not find any "Income Landing table." An automatically generated item that corresponds to the 1099-K does appear in the 1099-B etc. section, but upon editing it, there is no facility to "select Personal Items under the What type of investment did you sell." (It is only possible to select personal items when entering the 1099-K.) Consequently, entering the original cost (which, for the majority of used items vastly exceeds the proceeds from the sale) results in a loss, which the IRS explicitly disallows.

While it may appear that a simple workaround would be to enter the cost equal to proceeds (which would result in a correct zero gain/loss), this still does not solve the issue of those amounts not being shown on Form 1040 Schedule 1 lines 8z and 24z, respectively, as the IRS wants.

[mrk06]

@JosephS1 @LindaS5247 @SharonD007 @RalphH1 @AbrahamT 

Would any of the employee tax experts care to respond here to this issue? Is Intuit going to add a Step by Step dialog to enter descriptions and amounts for Form 1040 Schedule 1 line 24z, and/or fix the bug of the lack of automatic summation of Lines 24a through 24z  in line 25 upon override of line 24z? If so, what is the expected date for the fix? If not, what is the workaround compliant with the IRS requirements?

[JosephS1]

I cannot determine if there is going to be an update with a step-by-step procedure for what you request.  What I can do, which you may have already explored, is give you the TurboTax FAQ on the procedure as is the current guidance.  This may not be what you are requesting but I will try to continue to monitor the situation for this type of item.  The following should be able to assist you:

On the Wages and Income page scroll down to Other Common Income

1. Click on Start at Form 1099-K
2. Click on Type it in Myself, then continue
3. Click on Personal Item Sales - this identification is very important for following up on your cost basis.
4. Enter your 1099-K information and follow the FAQ included below.

TurboTax FAQ

How do I enter personal item sales that were included on this 1099-K?

by TurboTax•Updated 3 weeks ago

We’ve collected your 1099-K information, but you’ll need to add more info about your sale in another section.

1. Select Continue on this screen.
2. On the Your 1099-K Summary screen, select Done.
3. From the Income Landing table, navigate to Investment topics, and select Start or Revisit for "Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B).
4. Go to Investments and Savings (1099-B, 1099-INT, 1099-DIV, 1099-K, Crypto) on the Income & Expenses screen. Select Edit/Add. 
5. On Your Investments and Savings Summary screen, you’ll see a line item for your 1099-K income. Select Edit or Review and enter the information for the first personal sale item.
   1. Be sure to select Personal Items under the What type of investment did you sell?
   2. The Cost or other basis amount should be the amount you originally paid for the item.
6. Select Continue when you’re finished to go to the Review your Sales screen.
   • If there was more than one personal item sale included in the 1099-K amount, select Add another sale to add each item.
   • If not, you can Continue.

If you sold your personal item(s) for a loss, that loss cannot offset other income on your tax return like capital loss items (stocks).

If you sold your personal item(s) for a gain, then you’ll need to pay short or long term capital gains tax on it, depending on how long you held the item. This is why you should enter each item separately and not net them together.

I hope this assists you in entering your information.  As I said earlier, I will try to monitor if there will be a step-by-step approach at some point and if so I will return to this thread to inform you and whomever else is interested.

Thank you for using TurboTax

[mrk06]

@JosephS1 

Clearly, you have not read this entire message thread; please do so. Entering the 1099-K does NOT result in Schedule 1 lines 8z / 24z to be filled the way IRS (not me) wants it for personal item sales.

I already posted the comment about the TT help/FAQ (a copy which you also provided) being inconsistent with the actual software. There is no "Income Landing table" to start with. There is a "Wages & Income" overview page.

In the "1099-MISC and Other Common Income" section of that page, there is an entry "Income from 1099-K." In the workflow for that item, there is a question:

"Choose which type of income your 1099-K is for"

where "Personal item sales" can be selected. After the info from 1099-K is entered, on the subsequent "Let's get the info from your 1099-K" page, the following appears:

"Personal Item Sales
We've added your personal item sales. You’ll need to enter additional information for your sale in another section. Learn More"

But even though a non-zero amount was entered for the 1099-K from eBay, the "Your 2022 Income Summary" page shows $0 for "Income from Form 1099-K."

In the process of entering the 1099-K, an item is then automatically created in the "Investment Income" section under "Stocks, Mutual Funds, Bonds, Other." It has an initial balance of $0. When the item is edited, the first dialog asks to "Confirm your financial institution info" which is already prefilled with "eBay" entered from the 1099-K. The next page says "Here's all the sales reported by eBay" and the list is initally empty. Upon clicking Add, there is a choice to enter either one sale at a time or a summary for each sales category. Regardless of which one is chosen, there is no way to to "select Personal Items under What type of investment did you sell" there, as the help you quoted states. So that help is out of sync with the TT reality.

Say you choose the summary and enter the Total Proceeds and Total Cost to each be equal to the amount reported on the 1099-K (so that there is no gain/loss, consistent with the sale of used personal items), and select the Long-Term Holding Period. This results in zero Net Gain/Loss in Category Box F "Long term sales not reported to the IRS." But eBay did report those sales to the IRS on the 1099-K and so you are reporting them as well!

More importantly, all these steps result in a Form 8453 being generated, which TT says has to mailed along with a statement to the IRS even if the return is filed electronically! On top of that, this whole 1099-K reporting process does not result in the Schedule 1 lines 8z or 24z being correctly filled, as the IRS wants them to be (read the IRS guidance referred to earlier in this thread).

So, how are TT 2022 users supposed to correctly report the online sales of used personal items?

[MichaelG81]

Yes, you have the right idea, but there isn't a way to access Line 24z (unless you override causing issues and it may not let you e-file). As per the ‌revised IRS instructions 27-JAN-2023, Form 8949 is used in this case. Proceeds/losses from “sales of personal items” are reported on Form 8949. Whether it is one personal item or more sold, it'll go to Form 8949.

There was a revision on January 27, 2023, from the IRS regarding the reporting of 1099Ks, with losses from sales of personal item(s) reported to the taxpayer on form 1099K. It states to either report on Form 8949 as done, or Schedule I lines 8z and 24z, as applicable.

Again, since it is Personal Items, in TurboTax it's correctly reported on Form 8949. First, enter your 1099K, after you enter your Box 1a gross amount and payer select continue. Select “Learn More” for instructions to enter your cost basis and proceeds in another section for your losses/gains (see instructions below). 

We’ve collected your 1099-K information, but you’ll need to add more info about your sale in another section. In TurboTax Online:

1. Select Continue on this screen.
2. On the Your 1099-K Summary screen, select Done.
3. From the Income Landing table, navigate to Investment topics, and select Start or Revisit for "Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B).
4. Go to Investments and Savings (1099-B, 1099-INT, 1099-DIV, 1099-K, Crypto) on the Income & Expenses screen. Select Edit/Add. 
5. On Your Investments and Savings Summary screen, you’ll see a line item for your 1099-K income. Select Edit or Review and enter the information for the first personal sale item.
   • Be sure to select Personal Items under the What type of investment did you sell?
   • The Cost or other basis amount should be the amount you originally paid for the item.
6. Select Continue when you’re finished to go to the Review your Sales screen.
   • If there was more than one personal item sale included in the 1099-K amount, select Add another sale to add each item.

If you sold your personal item(s) for a loss, that loss cannot offset other income on your tax return like capital loss items (stocks).

If you sold your personal item(s) for a gain, then you’ll need to pay short or long term gains tax on it, depending on how long you held the item. This is why you should enter each item separately and not net them together.

@mrk06

[mrk06]

@MichaelG81 

Thank you for your reply. Unfortunately, it does not solve the issue. The Help/FAQ both you and @JosephS1  quoted, in point #5 states:

"Be sure to select Personal Items under the What type of investment did you sell?"

There is no such "Personal Items" setting in the "Tell us about this sale" dialog. The only entries that can be made are proceeds, cost basis, holding period, and adjustments (only showing up if a "summary of each category" is selected).

Moreover, the Help/FAQ instruction

"The Cost or other basis amount should be the amount you originally paid for the item."

is incorrect. If an item was originally bought for $100 and sold for $40, then if $100 is entered for the cost basis this would result in a $60 loss that the IRS says is not deductible. See the example using lines 8z/24z in the Revised 2022 Instructions for Form 1040 (and 1040-SR) you referenced. It removes this problem, which is why it is a preferred approach. That is why Intuit should fix TT to allow entering the description and amount in Schedule 1 line 24z.

Now, when going the 1099-K reporting route, there might be a workaround: Check the "I have adjustments to enter for sales in this summary" and then enter a positive amount ($60 in the above example) that brings the non-deductible loss to zero. But it is unclear what adjustment code to enter for that; I am guessing L (see page 9 of Instructions for Form 8949). Is that a right approach?

[DawnC]

There is a screen that asks about less common adjustments.  Put an X on the line that says 'this loss is not deductible (personal use property'.   TurboTax will automatically put the L in the adjustment code on 8949.    The desktop instructions are different than the ones provided; they are for TurboTax Online.   You will see this screen in the desktop software.   

[mrk06]

@DawnC 

I do not see the "Select any less common adjustments that apply" screen when adding/editing sales in the item automatically created for the 1099-K. As I mentioned up front, I am using TurboTax Deluxe desktop. This is what it shows (I chose the "enter a summary for each sales category" option because no adjustment at all can be made in the "enter one sale at a time" option):

How do I get to the "Select any less common adjustments that apply" screen you showed?

Also, upon further review, the adjustment code "L" may not be applicable to a personal item sale. Here is the description from page 9 of "2022 Instructions for Form 8949":

The referenced section "Nondeductible Losses in the Instructions for Schedule D (Form 1040)" on page D-4 states:

"Don't deduct a loss from a sale or ex-change between certain related parties."

But this is not applicable to a sale of used personal items to an unrelated party on eBay. Hence, the adjustment code "L" may not be the right one, and all other codes in the table seem to be even less applicable. So which code should a TurboTax user enter in this reporting situation?

[RobertB4444]

Code L is a perfect code.  Go ahead and use it but make sure to maintain your records in case the IRS has questions about the transactions later.

@mrk06