Paying insurance payout to contractor in cash

Member since 2019 · 45 posts · 7 votes

I received an insurance payout for a damaged roof on a rental property and the contractor doing the work is offering a discount for cash payment. Does this make sense financially? If the payment is considered a business expense, then obviously it doesn't make sense, but I'm not sure if the payment is a tax write off since 1, I don't have an LLC, and 2 bc I don't even know if an insurance payout qualifies as a write off expense. Sorry, I'm new to rentals, so this might be a dumb question.

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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
2y
Quote from @Nate Pucel:

1. Be careful. Many people get suckered into paying cash, and then the contractor disappears. You can reduce this risk by purchasing materials and then paying the contractor in increments. That is much lower risk than handing him a bunch of cash and watching him drive away with it. My favorite method: a chunk upfront, smaller chunks as they go, and the final 10-20% after the work is approved by you. A roof only takes 3-5 days, so incremental payments may look like 50% upfront, 30% when complete, then the final 20% after approval.
2. You can spend the remaining funds on other improvements and write them off as business expenses.
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