How to handle a 1099-K from PayPal for personal loans between community members?

This is actually a common issue with payment platforms now that the reporting threshold for 1099-Ks has changed. The good news is you don't need to pay taxes on loan repayments since they're not income. You should report the full amount from the 1099-K on Schedule 1, Line 8z (Other Income) and then offset it with a negative adjustment on the same schedule. Next to the negative adjustment, write "1099-K Loan Repayments - Not Income" to explain the entry. This way, the IRS can see you're accounting for the 1099-K they received, but you're correctly showing it's not taxable income. Keep all documentation that proves these were personal loans - things like the original PayPal transaction receipts showing money coming in as "friends and family," any messaging between you and the lenders discussing loan terms, and the repayment transactions. Having a paper trail is super important if you ever get questioned about it.

I went through something similar last year with my 1099-K from Venmo showing over $10k that was mostly just splitting rent and utilities with roommates. I was totally stressed until I found taxr.ai (https://taxr.ai) which really saved me. Their system analyzed all my payment descriptions and transaction patterns and generated a detailed report showing which transactions were personal vs. actual income. The documentation they created was exactly what I needed to properly report my 1099-K situation. Their report even categorized everything by tax classification so I knew exactly what to report where. My accountant was super impressed with how organized everything was compared to the mess of PayPal statements I had before.

Just wanted to update that I tried taxr.ai after seeing it mentioned here and wow, it was exactly what I needed! My situation was different (lots of family transfers mixed with my side business) but the analysis they did saved me hours of going through transactions manually. The report clearly separated my actual business income from personal transfers, and I was able to correctly report just the business portion on my Schedule C. Their documentation is super detailed - it even flagged a few transactions I would have miscategorized myself. Definitely worth checking out if you're dealing with a messy 1099-K situation!

After waiting on hold with the IRS for nearly three hours trying to get clarification about my 1099-K situation, I finally discovered Claimyr (https://claimyr.com). They got me connected to an actual IRS agent in less than 20 minutes! You can see how it works in this demo video: https://youtu.be/_kiP6q8DX5c I explained my loan repayment situation to the IRS rep, and she walked me through exactly how to report it on my tax return. Having that official guidance directly from the IRS gave me so much confidence that I was handling it correctly. Before using Claimyr, I had tried calling the IRS five separate times and always got disconnected after waiting forever.

I need to eat my words about Claimyr. After posting my skeptical comment, I decided to try it anyway since I was desperate to talk to someone at the IRS about my 1099-K from DoorDash (which included a bunch of reimbursements that weren't actual income). I was completely shocked when I got a call back in about 15 minutes with an actual IRS representative on the line! The agent walked me through exactly how to report the non-income portions of my 1099-K using Schedule 1 adjustments, just like someone mentioned above. She even emailed me the specific publication that covered my situation. For anyone dealing with 1099-K issues this year, being able to get official guidance directly from the IRS is incredibly valuable. I would have spent hours on hold or given up completely without this service.

Another option is to file Form 8949 with a code L adjustment. This is what my tax preparer did for a similar situation I had with Venmo payments. For the PayPal loans, you'd list the 1099-K amount under proceeds, then put your cost basis as the same amount, resulting in zero gain. Add a note that says "Not income - personal loan repayments." This approach worked fine for me last year, though it was for a smaller amount (about $3k).

Has anyone actually been audited over this kind of thing? I got a 1099-K from PayPal too for about $5,200 which was mostly just friends paying me back for concert tickets and group vacation expenses. I'm wondering how aggressive the IRS is about following up on these.

I'm dealing with a similar situation but with a twist - I received loans through Zelle and Venmo but repaid some through PayPal when those platforms weren't working. Now I have 1099-Ks from multiple platforms showing different pieces of the puzzle. From what I've learned researching this, the most important thing is creating a clear paper trail that shows the loan-to-repayment relationship across all platforms. I'm putting together a spreadsheet that matches each incoming loan (with screenshots of the original transfer descriptions like "loan" or "help with rent") to the corresponding repayment, even when they happened on different apps. For reporting, I'm planning to use the Schedule 1 approach that Melissa mentioned - reporting the total 1099-K amounts and then offsetting with a negative adjustment. I'll attach a detailed explanation and my documentation spreadsheet to show these were legitimate personal loans, not income. The cross-platform aspect definitely makes it more complex, but the fundamental principle is the same - these are loan repayments, not taxable income, regardless of which app processed them.