REVISED FAQS ON FORM 1099-K:
The IRS today has revised “frequently asked questions” (FAQs) on Form 1099-K (Payment Card and Third Party Network Transactions).
According to the accompanying IRS release—IR-2023-53 (March 22, 2023)—the updates are:
- General section: Question 3 updated
Q3. Is the gain or loss on the sale of a personal item used to compute my taxable income? Is that reported on a Form 1099-K? (updated March 22, 2023)
A3. Gain or loss on the sale of a personal item is generally the difference between the amount you paid for the item (the purchase price) and the amount you receive when you sell it (the sales price).
For example, if you bought a refrigerator for $1,000 (the purchase price) and sold it for $600 (the sales price), you have a loss of $400. $600 sales price - $1,000 purchase price = ($400) loss amount.
On the other hand, if you bought concert tickets for $500 (the purchase price) and sold them for $900 (the sales price), you have a gain of $400. $900 sales price - $500 purchase price = $400 gain amount.
The gain on the sale of a personal item is taxable. You must report the transaction (gain on sale) on Form 8949, Sales and Other Dispositions of Capital Assets, and Form 1040, U.S. Individual Income Tax Return, Schedule D, Capital Gains and Losses. See Publication 551, Basis of Assets, for guidance in determining your basis.
The gain on the sale of a personal item might be reported on a Form 1099-K.
The loss on the sale of a personal item is not deductible. For calendar year 2022 tax returns, if you receive a Form 1099- K, for the sale of a personal item that resulted in a loss, you should make offsetting entries on Form 1040, U.S. Individual Income Tax Return, Schedule 1, Additional Income and Adjustments to Income, as follows:
Report your proceeds (the Form 1099-K amount) on Part I – Line 8z – Other Income, using the description "Form 1099-K Personal Item Sold at a Loss."
Report your costs, up to but not more than the proceeds amount (the Form 1099-K amount), on Part II – Line 24z – Other Adjustments, using the description "Form 1099-K Personal Item Sold at a Loss."
In the example of the refrigerator sale above, if you received a Form 1099-K for $600 for the refrigerator for which you originally paid $1,000, you should report the loss transaction as follows:
Form 1040, Schedule 1, Part I – Line 8z, Other Income. List type and amount: "Form 1099-K Personal Item Sold at a Loss….
$600" to show the proceeds from the sale reported on the Form 1099-K
and,
Form 1040, Schedule 1, Part II – Line 24z, Other Adjustments. List type and amount: "Form 1099-K Personal Item Sold at a Loss…. $600" to show the amount of the purchase price that offsets the reported proceeds. Do not report the $1,000 you paid for the refrigerator because the loss on the sale of a personal item is not deductible.
You can use Form 8949 and Schedule D to report the sale of a personal item at a loss instead of Schedule 1 if you wish, for example, because you have other transactions that require you to file Form 8949 and Schedule D anyway. Because the loss isn't deductible, enter an adjustment when reporting the proceeds and basis of the personal item on Form 8949 as follows. Enter “L” in column (f) as the code explaining the loss is nondeductible. Then enter the amount of the nondeductible loss as a positive number in column (g). In the example of the refrigerator sale above, enter $600 in column (d) for the proceeds, $1,000 in column (e) for the cost or other basis, “L” in column (f), and $400 in column (g) as the amount of the adjustment. This will result in $0 as the gain or loss in column (h).
- Individuals section: Questions 6 and 7 added
Q6. If I receive multiple Forms 1099-K that report proceeds from the sale of personal items sold at a loss or Forms 1099-K received in error, do I need to identify the issuer and the amounts separately for each or can I combine them all into one item on the Schedule 1, Additional Income and Adjustments to Income, for entry on Lines 8z, Other Income, and 24z, Other Adjustments? (added March 22, 2023)
A6. You may report offsetting entries on Schedule 1, lines 8z and 24z for each Form 1099-K you received separately, or you may combine the Forms 1099-K received as follows:
One combined set of offsetting entries on Schedule 1 for all Forms 1099-K received reporting sales of personal items sold at a loss. Report the combined total of the proceeds on Schedule 1 – Line 8z – Other Income, using the description “Forms 1099-K Personal Items Sold at a Loss.” Report the combined cost of the items, up to but not more than the proceeds of each item sold, on Line 24z – Other Adjustments, using the description "Forms 1099-K Personal Items Sold at a Loss."
One combined set of offsetting entries on Schedule 1 for all Forms 1099-K received in error. Report the combined amounts from Line 1a, Gross amount of payment card/third party network transactions, for the Forms 1099-K received in error on Schedule 1 – Line 8z – Other Income, using the description “Forms 1099-K Received in Error.” Report the same amount reported on Line 8z on Line 24z – Other Adjustments, using the description "Forms 1099-K Received in Error."
Q7. I received a Form 1099-K in error and could not get a corrected form in time to file my taxes. The tax software I use put the gross proceeds amount as a positive and the offsetting amount as a negative on Schedule 1, line 8z. This is different from instructions that say to input the offsetting amount on Schedule 1, line 24z. Is alternative reporting okay? (added March 22, 2023)
A7. Yes. For tax year 2022 you may use Schedule 1, line 8z to show both the gross proceeds and the offsetting negative amount to report a Form 1099-K received in error or report proceeds from the sale of a personal item at a loss as an alternative to reporting only gross proceeds on Schedule 1, line 8z with offsetting amounts on Schedule 1, line 24z.
Note: When reporting sales of personal items at a loss you may instead report the transaction(s) on Form 8949, Sales and Other Dispositions of Capital Assets, which carries to Schedule D, Capital Gains and Losses.
- Filing Form 1099-K section: Question 5 updated
Q5. Is there a de minimis exception from reporting payments to participating payees of third party network transactions on Form 1099-K for a third party settlement organization? (updated March 22, 2023)
A5. Yes. There is a de minimis exception from reporting for third party settlement organizations with respect to third party network transactions. The threshold was lowered by law for calendar years beginning after 2021; however, on December 23, 2022, the IRS announced it was delaying implementation of the lower threshold and would treat calendar year 2022 as a transition year for filers in which the prior (higher) threshold would apply. Therefore, for calendar year 2022, third- party settlement organizations are only required to issue Forms 1099-K to report transactions where gross payments to a participating payee for goods and services during the calendar year exceed $20,000 and there are more than 200 transactions. See Notice 2023-10, Revised Timeline Regarding Implementation of Amended Section 6050W(e), which delayed a change to the de minimis exception from reporting third party network transactions that would have required reporting if payments to a participating payee for goods and services during the calendar year exceeded $600.
