$ from developer for damage, reimbursement - 1099 misc sent - taxable?

A developer building right next door to our home had to raze our garden in 2008 so that they could build their huge building. We asked in advance for $14 per square foot for the damage, and to allow them to work in and completely cover our garden with scaffolding for 18 months. They paid us in 2008, and the 18 months is over at the end of March

2010. Early in 2009 they sent us a 1099 misc, and although we did not consider the money they paid us "rent" they said we had no choice but to pay taxes, so we did. (They took dirt away and are now saying that the money should have included the cost of new dirt. The agreement we drafted, which they saigned, said nothing about the dirt - they took it away without permission. So we now have other expenses related to their work.)

In 2009 water infiltration caused by their construction destroyed our finished basement. We signed a release from liability in exchange for money for the damaged basement. The release included our roof (which they'd damaged so it was leaking) and damage to the interior of the top floor of our house (from the roof leak.) In fact, it included every issue associated with their work, up until the date we signed the release. (We had a lawyer look at the release, but it was not signed after a court judgment or anything like that.) So it also included their using a lot of electricity because their remediation company plugged in super-duper dehumidifiers to stop mold from growing in our basement. We sent them copies of our highly inflated electric bills and they sent us checks. We also asked for reimbursement for furniture that was destroyed and that they threw away during remediation of the basement. And I got several estimates for bringing dirt into the garden and re- grading it, and added that in to the total release amount, too. The release included all of these things, plus any "future, unknown" issues arising from the water infiltration. To compensate us for "unknown" issues, we added some additional money to the compensation amount requested, which they gladly paid.

Since then we lost heat for a few weeks because they failed to comply with building codes and carbon monoxide built up in our home and shut our furnace off. They say that they'll compensate us for extra carbon monoxide detectors and space-heaters, but we haven't received the check yet. (They are now in compliance with the building code.)

Yesterday they sent us 1099 misc for all of the money they paid us in

2009. This includes the release money, and the expenses they paid us for through the year because of their work (extra electricity, etc.) and the items they destroyed and tossed which they paid for the estimated replacement cost of (which they paid separate from the release, too, but we didn't buy new items until 2010).

I am pretty ignorant of tax issues, and when people even just start talking about "deducting the basis in your home" I get muddled. I usually use a simple TaxActOnline or TurboTax type of program to do my taxes, and I'd rather continue to do my taxes myself. But with these 1099 misc's (the amounts are in the "other income" boxes) - I think I need advice. Should I ask them to reissue the 1099 misc forms with the compensation noted in the "non-employee compensation" box - would that make any difference?

From my description of what the compensation was for - is the money taxable?

How should I deal with the 1099 misc forms (my partner received two and I received two too - I think because they gave us different checks for different items throughout the year?)?

Any advice you could offer would be deeply appreciated. Thank you! Violet

========================================= MODERATOR'S COMMENT: Anyone replying to this message, please drastically trim the quoted text.

Reply to
blackandwhiteviolet
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The greatest taxable amount should be the dollars received less the dollars you spent restoring your property.

Many of your questions have legal implications outside the tax arena. You should seriously consider consulting with an attorney.

Reply to
Bill Brown

Thank you very much, Mr. Brown. I guess I will search for a good tax person!

Reply to
blackandwhiteviolet

sounds like rental income, and rental expense to restore your garden.

if you paid tax on rent, without deducting any rental expenses incurred in

2008, you should amend your 2008 return. But, perhaps all of the rental expenses were all incurred in 2009.

[other exapmles of their damages inflicted on your property snipped]

sounds like causualty loss, to the extent you had greater loss than they paid you for. But, it really sounds like it balances out. I suppose you should attach a schedule to your return showing this offset, with a "zero - see schedule" note on schedule A

That is my simplistic take on this. Any other comments/suggestions?

Reply to
Wallace

SNIPPED A LOT - but the gist is that the OP got some money which the developer reported to them as rent on a 1099. Due to some other issues, they've received some additional monies that is also being reported to them.

First, the law requires payers to issue a 1099 when they pay any unincorporated entity money in the course of the regular trade or business. YOU don't seem to have performed any services for the developer so I don't think they should have issued you a 1099 at all.

While they would normally issue a 1099 to a landscaper who did work FOR THEM, that is not how you stated your case.

What they did was compensate you for damages they did to your property. Without a court case, there can be no punitive damages, all monies would be in the nature of compensatory reimbursements - to replace what you had, not to enrich you. This is akin to returning something to the store that you bought but which did not work when you got it home - by taking it back you aren't being enriched, your being returned to where you started. Certainly one would not expect the supermarket to issue a 1099 or any kind to someone who returned a piece of bad meat?

That being said, I do think the crux of your problem lies in your attempt to resolve the matter on your own without appropriate help. For example, had your attorney negotiated this issue he would have (or should have) know that the nature of the money isn't enrichment so he would have addressed the nonissuance of a reporting document as part of the deal. Your not knowing the intricacies of such things, you overlooked it - now you have to deal with it.

How you deal with it will be equally intricate and you should NOT rely too heavily on too much of what you get from any of us here, me included. We do NOT have access to all the documents and paperwork that you negotiated so we are ignorant about the details - AND the devil IS in the details.

Your second mistake was in accepting tax advice from the same people who sent you the 1099. Even if they knew what they were talking about and were doing their very best to comply with the law, they are NOT on YOUR side. So you can be sure of only one thing - the position they took as done for their benefit NOT yours.

Generally though, when you get an erroneous 1099 you have several ways of dealing with it:

1 - you can suck it up and pay tax as though it was right (I don't usually recommend this but sometimes if the dollars are small this is the easiest way. My dad used to say that sometimes its cheaper to pay the $2 than to fight city hall); 2 - you can contact the issuer and ask them to correct the 1099. Good luck with this! They issued the 1099 (hopefully) in good faith based on what they thought was the right thing to do. You, especially you as a nonprofessional, have little chance of getting them to change their position; 3 - you can deal with it on your tax return by reporting what they sent you, incorrect though it may be, then fixing it so that it is reported correctly on your return. The big problem for you in doing this is that you likely won't know HOW to do it, you'll need professional help.

Good luck, Gene E. Utterback, EA, RFC, ABA

Reply to
Gene E. Utterback, EA, RFC, AB

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