Form 1099-K for Selling Personal Property on Ebay

[Brenda's Taxes]

I am seeing a lot of Form 1099-K's this year for clients that have sold personal items at a loss. I've received conflicting direction on whether these transactions need to be reported on Schedule D or not. I understand you cannot take a loss against other income for personal items sold. What do I do about a client who says they only sold a few personal things, but I can see from the 1099-K that the number of transactions was over 700? It looks to me like maybe they are going around to yard sales and buying items then selling them for more of a profit. If I don't include the 1099-K information on the return, will the return be flagged by the IRS for missing information on the 1099-K? Thanks!

[ATSMAN]

I have a client who is retired and does the same thing. Goes around town on bulk pick up days and brings home appliances, furniture etc., fixes them and then sells them online.

With 700 transaction in a year, you have a choice. The safe one is treat it as a hobby and be done with, otherwise follow the rules for a Sch C business.

[Brenda's Taxes]

Thank you for your response ATSMAN

Would you report any sale transactions on Schedule D at all for the person who sold only a few items throughout the year? Hobby losses can only be deducted if you itemize. But if you record it on the Schedule D with the box checked for "Do not allow personal losses", then at least it's showing on the return if questioned by the IRS. Like for the client who sold his sneaker collection over several months, or the lady who sold a few Prada bags?

[Burke]

I personally like that approach, which documents it both for the TP's benefit, and your own, to show it was accounted for. From the situations you describe where sneakers and Prada bags are concerned, however, it does not appear that any 1099-K was issued due to the number of sales and amounts which would have been realized. The IRS says
Schedule D should be used for collectibles, which are taxed at different rates. I would treat this as a hobby, no losses allowed. Is there some kind of worksheet in your software where this could be calculated just FYI?

The original post indicated that it appeared to be a continuing endeavor lending it more to a business than a hobby. If they are buying , fixing up and selling the same items it should be treated as such and reported on Sche C subject to the hobby loss rules. And if they are receiving a 1099K (over 200 transactions & $20K in sales) then it needs to be reported. Yes, the TP will be receiving a CP2000 at the very least if it isn't.

[Rapid Robert]

The IRS says
Schedule D should be used for collectibles, which are taxed at different rates. I would treat this as a hobby, no losses allowed. Is there some kind of worksheet in your software where this could be calculated just FYI?

Schedule D treatment is preferable, and correct in my opinion. As a hobby, you still have to report gross taxable income on Line 21, but as you say, no losses allowed (almost never under prior tax law, and definitely not under new law). You would essentially be paying tax twice, first on the money you used to buy the item, and then again on the total amount you received for resale.

If someone sells their sneaker collection (not conducted as a trade/business), I will definitely not report the gross proceeds as hobby income on Line 21, and I will not apply "collectible" cap gains rates on Schedule D if a few of the individual transactions were at a gain (which, due solely to inflation, is very possible).

[Rapid Robert]

Schedule D treatment is preferable, and correct in my opinion. As a hobby, you still have to report gross taxable income on Line 21, but as you say, no losses allowed

I suppose if treated as a hobby, the original cost of the items could be considered COGS and therefore deducted before calculating gross income. In the case of Schedule D, each sale transaction stands on its own as a gain or (non-deductible) loss, while as COGS all the transactions are aggregated. But treating it this way (hobby with COGS) to me also points much more strongly to it being a for-profit activity, since you'd be carrying inventory (conducting the activity in a business-like manner).