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

Question

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 · Answer

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.

Select Continue on this screen.
On the Your 1099-K Summary screen, select Done.
From the Income Landing table, navigate to Investment topics, and select Start or Revisit for "Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B).
Go to Investments and Savings (1099-B, 1099-INT, 1099-DIV, 1099-K, Crypto) on the Income & Expenses screen. Select Edit/Add.
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.
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.