Re: Is Landlord Double Dipping?

"Cost of labor" is not the correct term, unless the tenants hired an employee or subcontractor to do the work. Your own labor is not a cost to you, for tax purposes.

He didn't forgive any rent. It was a bartering (cashless) business transaction, with a fair market value of $6,000 (determined by two parties with adverse economic interests in an arm's-length transaction). As already noted, each side had $6,000 of income.

The self-employment tax is based on their net profit, not just their labor. If they were smart and added a mark-up to the materials(1), they pay SE tax on that too. If their net profit was low enough (approximately $433), they won't even owe that, just income tax.

(That is, the amount left over

And after they also deduct any other ordinary and necessary business expenses, such as business use of a vehicle to pick up materials and supplies for the job, small hand tools, etc.

Not really. If they had paid the rent in cash from wage income, they still would have paid (directly and indirectly through their employer) full FICA taxes on the equivalent labor. They also didn't have to incur non-deductible expenses such as commuting, as they would with wage income. Plus, they were able to schedule the work at their own convenience, rather than have their privacy and peaceful enjoyment interrupted by the schedule of some outside contractor hired by the landlord.

(1) not sure if that would trigger a sales tax obligation for the mark-up, assuming they paid sales tax on their purchase price.

-Mark Bole

And under this view, the 1099-MISC is the wrong document to file for the transaction. 1099-B is the correct document. However, see below.

How is this a business transaction for the tenant? There's no FICA taxes involved here. The landlord paid NOTHING (i.e. no check was issued), so the

. . .

I don't think a landlord would foregive $6,000 of rent in return for improvements that will be taken by the tenant, do you?

The tenant made improvements, in return for $6,000 worth of rent.

Seth

Probably not but stranger things have happened.

Which is NOT a disbursement by the landlord. Regardless, it was the purchase (and incidental installation) of an asset, and that's not