Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.
Thank you for your question, and thanks for using JustAnswer.com. You will not owe tax on this transaction
, because this was a loss and personal losses are not deductible. You will need to provide the IRS with documentation of this sale, showing that it was at a loss and it was a personal property transaction.
Draft a letter to the address on your notice, and include COPIES of your documentation. Send it with a return receipt so that you have proof that you sent this in. It will take the IRS approximately 60 days to respond.
You won't owe the tax - the problem is that the IRS only knows what the computer tells it, and it reported income that you did not claim on your return.
See tax topic 409, which indicates the following: Losses from the sale of personal-use property, such as your home or car, are not deductible. CLICK HERE
Proof of the loss would be showing that you purchased the property for $14,000 and then sold it for $11,000.
Please let me know if you need anything additional. Thanks for using JustAnswer.com and have a happy and safe 2013.
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You should be aware that your question, as with most tax questions, can never really be answered completely...addressing all the permutations; that is because of the many assumptions that have to be made I have done my best to determine what I think you are asking and answering it in the most direct and understandable manner possible. If, however, after reviewing the questions, you have any uncertainties or further questions, please do not hesitate to ask.