Getting taxed on personal property when selling for a loss? Do I owe taxes when I actually lost money?

You're dealing with two separate tax issues here. First, PayPal is required to report transactions totaling $600+ on a 1099-K form, regardless of whether they were profitable or not. This is just reporting gross sales, not your profit/loss. Second, you're correct that losses on personal-use property (like bikes and headphones you bought for personal enjoyment) are generally not deductible on your tax return. The IRS considers these personal losses, not business losses. When you file taxes, you'll report the 1099-K amount on Schedule 1 as "Other Income" but then you can subtract your original cost basis of these items as "Other Expenses" with a description like "Cost of personal items sold." This results in no taxable income if you truly sold at a loss. Keep receipts of your original purchases in case of questions. Just be sure these weren't items you were buying and selling regularly as a side business - that would be different tax treatment as self-employment income.

This happened to me last year when I was selling some camera equipment! I was super stressed about it until I found this service called taxr.ai (https://taxr.ai) that helped me sort through the rules around personal property sales. They have this tool that analyzes your situation and shows you exactly how to document your case for the IRS. Basically, even though you can't claim the loss as a deduction, you DO need to properly document that these were personal items sold at a loss so you don't end up paying taxes on money you didn't actually make. The key thing taxr.ai showed me was how to properly document my cost basis and reconcile the 1099-K with my actual situation. They have expertise specifically with these kinds of hobby sales vs. actual business transactions. Totally worth checking out if you're confused about how to handle this!

Just wanted to update after trying taxr.ai that someone recommended here. It actually helped me figure out exactly how to handle my PayPal 1099-K situation with my record collection sales! The system showed me that I needed to report the full amount from the 1099-K on my return, but then it walked me through how to document my original purchase costs to offset that income. What was really helpful was their explanation about how to handle missing receipts - they showed me how to create a reasonable estimate of basis using online listings and documentation. Definitely cleared up a lot of confusion I had about where to report everything on my tax forms. Highly recommend if you're dealing with this personal property selling situation!

If you get audited because of the mismatch between your 1099-K and what you're reporting, good luck getting through to the IRS to explain your situation! I spent literally WEEKS trying to call them about a similar issue last year. Finally I found this service called Claimyr (https://claimyr.com) that got me through to an actual human at the IRS in under 45 minutes when I'd been trying for days. You can see how it works here: https://youtu.be/_kiP6q8DX5c They basically hold your place in the IRS phone queue and call you when they get a human on the line. Once I could actually talk to someone, I explained my situation with selling personal items at a loss, and they clarified exactly how to report it. Saved me so much stress. If you end up with any IRS notices about this, definitely worth using to get an actual person on the phone.

Alright I have to eat my words. After being skeptical about that Claimyr service, I actually tried it yesterday because I was desperate to talk to someone at the IRS about my 1099-K situation. It actually worked! Took about an hour and 20 minutes (not quite the 45 minutes advertised), but that's WAY better than my previous attempts where I never got through at all. When my phone rang and there was actually an IRS agent on the line, I almost fell out of my chair. The agent confirmed what others here have said - I need to report the full 1099-K amount but can offset it with my cost basis even though these were personal items. She suggested keeping detailed records of original purchase prices and even took time to explain exactly which lines on the tax forms to use. For anyone dealing with this PayPal/personal property situation, getting actual clarification from the IRS was super helpful.

Everyone's talking about the tax reporting but not addressing a key issue: PayPal's threshold reporting DOES NOT automatically mean you owe taxes! I sell stuff on eBay all the time. The 1099-K just reports GROSS payments, not profit. Think of it this way - the IRS is being told "hey this person received $X" but they have no idea if that was business income, personal items sold at a loss, or whatever. It's YOUR job to categorize it correctly on your tax return. Just make sure to keep good records proving these were personal use items. Take photos of the items before selling if possible, and definitely keep all receipts going forward!

Has anyone tried using TurboTax to handle this situation? I'm in the exact same boat with PayPal reporting my personal item sales, but I'm confused about where to enter all this in the software.

This is a really common situation that trips people up! I went through something similar when I sold some photography gear I had bought but barely used. The key thing to remember is that the 1099-K is just PayPal telling the IRS "we processed $X in payments to this person" - it doesn't mean you made a profit. Since you lost $2,800 overall, you definitely shouldn't owe taxes on this. The tricky part is just making sure you document everything properly. I'd recommend creating a simple spreadsheet showing each item, what you paid for it, what you sold it for, and the loss on each one. This will be super helpful if the IRS ever has questions. Also, start keeping better records going forward! I learned my lesson and now I photograph receipts immediately and store them in a folder on my phone. Makes tax time so much less stressful when you have everything organized. The good news is that once you report this correctly, it should result in zero additional tax liability since you actually lost money on the transactions.