How would you handle this?

[Tax Prep by Deb]

I have a client who had a friend whose house burned down. Either because she had no insurance or was way under insured she didn't have enough money to rebuild. My client used $80,000.00 of his equity to invest in this project, as well as provided much labor to rebuild it (not in the trade of building houses). When the home was finished it was put on the market and was sold.

On the closing papers it states that my client received $201,102.00, and he did. He was never on the deed, or the mortgage that was paid off when this house was sold.

I'm not quite sure how to handle this. Any suggestions? Would it be Schedule D? Schedule C?

Any thoughts would be greatly appreciated.

P.S. No 1099-S was issued to my client. The only record of payment is on the closing papers that his friend provided.

Thanks for your opinions!

Deb!

[kcjenkins]

I would show this on Sch D, and his basis would be his invested money, including any materials he might have purchased, in addition to the 80K. But nothing for his labor. Since he's not in the business of building houses, it's just sweat equity, and not subject to SE tax, but it is subject to income tax.

[Tax Prep by Deb]

I would show this on Sch D, and his basis would be his invested money, including any materials he might have purchased, in addition to the 80K. But nothing for his labor. Since he's not in the business of building houses, it's just sweat equity, and not subject to SE tax, but it is subject to income tax.

Thanks KC.

That's were I was going, but just wanted to confirm.

Deb!