Posted by Kev (NC) on November 02, 1999 at 16:26:37:
Report their compensation on Form 1099 (or W-2 if employed) and take the deduction on your tax return.
I NEED TAX ADVICE - Posted by Fred
Posted by Fred on November 02, 1999 at 14:26:52:
Could someone please give me information and or advice about my up coming tax situation. I have rehabbed and sold two houses this year. The remodeling was done by me and friends who were payed for their labor. I can account for the purchase of the property,the materials,all such closing cost,and my profit.How do,or under what set of rules do I claim the labor cost. I’m sending out an SOS.
Consult a tax professional - Posted by Dave T
Posted by Dave T on November 02, 1999 at 18:55:54:
Usually in a rehab project, the rehab is done to increase the property’s value and thereby command a higher sale price when sold to your buyer.
In this case, your rehab work falls into the category of construction, reconstruction, and capital improvements. The cost incurred for this work is called a capital expenditure and can not be deducted. Instead, the cost of the work is added to the basis of the property. That is, the purchase price plus the rehab cost and any other acquisition costs are added together to derive your cost basis. The difference between your cost basis and your net selling price is your taxable profit.
1099 your friends for their labor, but any labor you contributed in the course of the effort is “sweat equity” at zero cost.
DISCLAIMER: I am not a tax professional. The information in this post is only my opinion, not tax advice. Please consult a competent tax professional for the definitive answer in your specific circumstances.
Answer to you posted question - Posted by Common Cent$ Solutions
Posted by Common Cent$ Solutions on November 02, 1999 at 18:03:20:
Based on the information you provided (which is limited) the following would apply if you are self-employed: All deductions - including labor paid (assuming you can substantiate this cost)- are claimed on Schedule C of your individual tax return form.
File a 1099 for independent contractors you paid (were your friends independently working?) or if you paid them a salary, you need to file a W-2 form for them by 1/31/00.
If you are a corporation or other entity, please provide this information for further consideration.