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Posted by dpb on April 17, 2008, 6:31 pm
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Mark Bole wrote:
...
> I assumed they were residential tenants and the landlord in a passive
> rental activity. I also assumed that this deal was agreed-to in advance
> via an arm's-length transaction.
>
> But regardless of business vs. residential, and regardless of what kind
> of 1099 was or was not issued, the tenants received $6K rental value for
> doing something they anticipated would cost them less than $6K to
> provide -- otherwise, why would they do it? I use "cost" here in the
> economic sense, not the tax sense.
>
> Therefore they have gross income of $6K in a for-profit activity and owe
> taxes on the net profit. If they totally miscalculated and have
> legitimate expenses (for example, accidental breakage) that actually
> exceed $6K, they would have a business loss (which might inspire them to
> close up shop and never try that business again).
>
> But for the month or two they did the work, they were in business (or
> else they were employees of the landlord, but let's not go there).
>
> The landlord also received $6K rental income, against which he can
> deduct some combination of repair expenses and depreciable capital
> improvements which add up to $6K (so, no, he is not double dipping).
>
> It was a barter exchange. See the first two paragraphs under "Bartering"
> and Example 4 on page 18 of 2007 Pub 525, which is almost exactly this
> same scenario. In Example 4, the tenant is an artist, which could be
> either a hobby or a business. It seems unlikely to me that the tenants
> in our example do this kind of thing as a hobby.
I don't see anything at all out of the ordinary for a couple guys who
are relatively handy essentially volunteering some work to make
improvements for cost irrespective of their day jobs. I certainly did
it often enough as a young pup right out of school when $$ were tight
and it was easier to get something improved if could do it oneself
rather than expect the landlord to deal with something that really
wasn't necessarily broke, just could be better.
In those days, never had a 1099 issued, but they were simpler times and
landlords weren't professional landlords, either; just renting an
earlier house or even earlier a widow lady taking in students in the
basement of her house...
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