I received a 1099-NEC from a business that I sold a musical instrument to. How do I record this so that I won't pay tax on it? The sale was for the same amount I paid.

[MindyB]

The business should not have issued you a 1099-NEC, because you did not perform any work for them.  But, since they filed it with the IRS, I recommend entering the information so you do not end up with an automated notice from the IRS when their matching software notices the discrepancy.   It is important to report this as other income, if you use the typical 1099-NEC entry, it will populate self-employment forms, which are not applicable to you.

Here is how to do it, so that you don't owe any tax on the transaction:

1. Navigate to Wages & Income > Add more income > Less Common Income > Miscellaneous Income, 1099-A, 1099-C
2. Choose Other reportable income and say "Yes" you received other taxable income.
3. On the screen Any other taxable income? select Add
4. Enter a description such as: "Form 1099-NEC received for sale of personal musical instrument" and enter the full amount from Box 1 of the 1099-NEC.
5. In the same Other taxable income section, add a second entry.
6. Enter a description such as: "Cost basis of personal musical instrument sold" and enter the exact same amount as what was reported in 1099-NEC Box one, but negative. The two entries with net to zero, with no taxable amount on your return.

[gxt1]

I like MindyB's answer, more than I know!

But if I didn't have that answer of how to get around the fact that a 1099-NEC shouldn't have been issued, it should have been a 1099-MISC, I would go back to the company that bought the instrument and ask them to correct the error and send the corrected version to myself and the IRS. I had to do that with an incorrectly issued / configured 1099-K once, and the company did correct it.