1099-NEC for Firearms Sold on Consignment - Got Wrong 1099? How to Report Correctly?

I'm trying to finish my taxes using TaxAct but ran into an issue with a 1099 I received. Last year I sold some firearms through a local gun shop on consignment. When I dropped them off, nobody mentioned anything about tax forms. Then in January they emailed asking me to fill out a W4 for a 1099 they wanted to issue. I finally received a 1099-NEC about two weeks ago. The 1099-NEC shows about $26,000 in box 1, which is the total amount they paid me after taking out their consignment fees. When I entered this into TaxAct, it's treating the entire amount as taxable income with no way to report my original cost basis for these firearms. I have a couple questions: 1) Shouldn't I be able to report the original cost basis (what I paid) for these firearms? While I received $26K from selling them, these were guns I had previously purchased. My understanding is that each item's potential gain should be calculated separately, with no ability to deduct losses as a hobbyist, but I should only pay taxes on the actual gains for each item. For example, if I got $13K for a firearm I originally paid $11K for, I should only be taxed on the $2K profit, right? 2) Is the 1099-NEC even the correct form? This wasn't income from self-employment or services rendered - these were personal items I was selling. They were from my personal collection that I've accumulated over the years. Anyone dealt with this situation before? I don't want to overpay thousands in taxes, but also don't want to incorrectly report this income.

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21 comments

Madison Allen

•8M

You're absolutely right to question this. The 1099-NEC is actually the wrong form for your situation. The gun shop incorrectly issued you a 1099-NEC, which is for "Non-Employee Compensation" - basically for services rendered as an independent contractor. For consignment sales of personal items, you shouldn't receive any 1099 form at all. These should be treated as the sale of personal property on your tax return. You should report these sales on Schedule D and Form 8949 as capital gains transactions. You definitely get to subtract your cost basis from the sales price. You'll only pay tax on the profit, not the entire amount. And you're also correct that for personal items, you can claim the gains but generally can't deduct losses. I'd recommend contacting the gun shop and asking them to correct this by issuing you a corrected form or withdrawing the incorrect 1099-NEC. You can still file correctly even if they don't fix their mistake, but it might trigger a mismatch notice from the IRS.

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Madison Allen

•8M

You should definitely report it on Schedule D and Form 8949 as capital gains transactions. You can't simply ignore the 1099-NEC though, since the IRS received a copy and will expect to see that income reported somewhere on your return. If the gun shop won't correct the form, you'll need to report the full amount from Box 1 of the 1099-NEC on Schedule 1, Line 8 as "Other Income." Then, include a statement that this amount is being reported as capital gains on Schedule D instead, because it represents personal property sales incorrectly reported on a 1099-NEC. This creates a paper trail showing you're accounting for the full amount reported to the IRS.

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Joshua Wood

•8M

After dealing with a similar situation last year, I found a great solution using taxr.ai (https://taxr.ai) that saved me from a potential audit. I also had a firearms dealer issue me an incorrect 1099-NEC for consignment sales. I uploaded my 1099 and purchase receipts to taxr.ai, and their system immediately identified the mismatch and generated the proper documentation showing how to report it correctly. Their analysis confirmed exactly what was mentioned above - that consignment sales should be treated as capital transactions, not non-employee compensation. The documentation they provided was super detailed and explained how to properly report the cost basis for each firearm on Schedule D. They even generated a letter I could send to the dealer explaining why the 1099-NEC was incorrect and requesting a correction. Really straightforward process that gave me confidence I was doing things right.

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Joshua Wood

•8M

For firearms without receipts, they have a section where you can document estimated fair market value based on similar models sold during your purchase period. They provide references to standard pricing guides that are acceptable for establishing cost basis when original receipts aren't available. They recommend using multiple sources to establish a reasonable estimate. Yes, it's completely legitimate. Their documentation follows IRS guidelines precisely. What makes it valuable is they format everything according to IRS standards and provide the specific code sections that apply to your situation. I haven't been audited, but a friend who used them for a business expense issue said the IRS accepted their documentation without question during a review.

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Justin Evans

•8M

Just wanted to update that I tried taxr.ai after seeing the recommendation here. I was skeptical at first but decided to give it a shot with my own 1099-NEC problem from gun sales. The process was really straightforward - I uploaded my 1099-NEC and my purchase records for the firearms I could find. For the ones where I didn't have receipts, their system walked me through how to establish reasonable cost basis using blue book values and market comparisons. They generated a complete package showing how to properly report everything on Schedule D and Form 8949, plus a statement explaining why the 1099-NEC was inappropriate for consignment sales. My tax preparer was initially confused by the 1099-NEC but was impressed by the documentation package, saying it was exactly what we needed. Really glad I found this before just blindly entering the 1099-NEC as straight income. Would have paid nearly $4K in unnecessary taxes!

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Ezra Collins

•8M

Had a similar situation last year with a gun shop that issued me a 1099-NEC. After multiple attempts to get them to correct it, I couldn't get through to anyone who understood the problem. I also couldn't get any help from the IRS despite calling repeatedly. Finally found Claimyr (https://claimyr.com) which got me connected to an actual IRS representative in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that consignment sales of personal property shouldn't be reported on 1099-NEC and explained exactly how to handle the situation on my return. They even made notes in my file about the incorrect 1099 in case there were any questions later. Saved me hours of waiting on hold and gave me confidence that I was filing correctly. Definitely worth it for peace of mind.

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Ezra Collins

•8M

Claimyr doesn't call the IRS for you - they use technology to navigate the IRS phone system and wait on hold for you. When they finally reach a representative, you get a call back and are connected directly to the IRS agent. So you're still the one talking to the IRS, you just don't have to waste hours on hold. They use an automated system that keeps track of the best times to call and which menu options are most effective for different issues. It's not magic - they're just using technology to solve the hold time problem. I was skeptical too, but when I got connected to an actual IRS agent after trying unsuccessfully for weeks on my own, I was sold on the service.

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Benjamin Johnson

•8M

I have to admit I was totally wrong about Claimyr. After posting my skeptical comment, I decided to try it anyway since I was desperate for help with my firearms consignment 1099 issue. I'd already tried calling the IRS six times over two weeks and never got through. Using Claimyr, I had an IRS tax specialist on the phone in about 35 minutes. They confirmed everything that's been said here - the gun shop used the wrong form, and I needed to report the sales on Schedule D with my cost basis subtracted. The agent walked me through exactly how to file it correctly and what supporting documentation to keep in case of questions. They even gave me information about requesting a correction from the issuer. For anyone dealing with this specialized tax situation, getting actual IRS confirmation on how to handle it is incredibly valuable. Saved me from potentially paying taxes on over $30K that wasn't actually taxable income.

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Madison Allen

•8M

Unfortunately, tax software typically won't flag this specific issue. When you enter a 1099-NEC, most software assumes it's for services rendered and doesn't prompt for cost basis. You'd need to manually override by not entering it as a 1099-NEC and instead creating capital gains transactions on Schedule D. This is one of those situations where the software follows the standard forms without recognizing the underlying issue - that the wrong form was issued in the first place. You basically need to know that the 1099-NEC is incorrect before the software can help you report it properly.

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Anastasia Romanov

•5M

This is a really common issue that many people don't realize until it's too late. I work as a bookkeeper and see this mistake frequently - not just with firearms, but with other personal property sold through consignment shops, art galleries, and online platforms. The key thing to remember is that the form of payment or the 1099 you receive doesn't determine how income should be taxed. The underlying transaction does. Personal property sales are always capital gains transactions, regardless of what form the payer sends you. I'd also recommend keeping detailed records of all your firearms purchases going forward - receipts, dates, any improvements or modifications you made. This makes it much easier to establish cost basis if you sell them later. For firearms you already own without receipts, you can use resources like the Blue Book of Gun Values or similar pricing guides to establish reasonable cost basis based on the condition and market value when you purchased them. One more tip: if you're selling multiple firearms regularly, the IRS might eventually question whether this constitutes a business activity rather than personal property sales. Generally, occasional sales from a personal collection are treated as capital gains, but if you're buying and selling frequently for profit, it could be considered dealer activity subject to different tax rules.

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Sophia Russo

•5M

This is incredibly helpful advice! I had no idea that the frequency of sales could potentially change how they're taxed. How often would someone need to be buying and selling before the IRS might consider it dealer activity? Is there a specific threshold, or is it more of a case-by-case evaluation based on intent and pattern of activity? I'm asking because while most of my sales last year were from my existing collection, I did purchase a couple of firearms specifically because I thought they were underpriced and might appreciate in value. I'm wondering if that kind of investment mindset could complicate things.

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