I went together with a family member to flip a house. They provided the funds, I provided the labor. Due to a profit smaller than hoped for, they let me have the $8,000 profit, and I reimbursed them for their investment, as well as covering the payments for their home equity loan. No interest or profit was paid to them. Where do I report this on my taxes on Schedule C, and is there a need for 1098 or 1099INT?
Shake their hand, thank them for their help and move on to the next deal. (Not what a CPA or the IRS would tell you of course) Report the profit as you normally do, pay the taxes.
Thanks Rob. i guess I am mainly wondering where I report their investment, or would I just use the amount (63k) in my cost of goods? They basically wrote me a check for 61.5k, then I paid them back $1.5 in addition for their home equity payments. Where would I report this?
They did you a huge favor for no benefit, so the least you could do is avoid complicating their tax situation. Just eat the extra $1500 as profit that you pay tax on.
Chris, thanks for your input! I have no problem doing that. As far as a favor goes -- we had already flipped two properties, and were working on the third. They came to us, wanted to fund it with us doing the work. They wanted to be completely hands off. Just send them a check when it was done. We were busy with our own, but agreed to work it in.
However the "hands off" part lasted about five minutes. The experience ended up being so miserable that we vowed never again with family, and we rarely speak to them. We at least had some idea what we were doing, and how to spend the funds. They wanted us to over-improve for the value of the house. Luckily we did not use any of their suggestions (requests), otherwise we would have all lost our shirts! As it was we ended up having to chip in about five k of our own. So sometimes that expression about the gift horse isn't true, lol.
I agree with Chris, don't complicate matters. Go get your next deal