In that case I think it would be fair when I sold something and took a loss (like is what happens most of the time when we sell musical equipment) we should get a tax refund..... Yeah like that's going to happen.
If IRS is looking these sales as sales by self employed persons, then that is absolutely how it will work. If you can prove what you paid and what you sold it with then a loss is deductible. As should be any cost of repairing the item. Luthier fees etc. I don't know if you could also charge your own time spend on repairing an item, but if you are considered a business, then you should be able to do that as well.
How does that all need to be reported is an interesting question. But is IRS looks you as a self employed business then I don't see how they could deny deductions that all other self employd businesses do.
For sure the tax prepares will get more business if whole lot of hobbyists start behaving as businesses.