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HelloCustomer Thank you for coming to Just Answer and allowing us to help you with your question. The transaction you describe is part of the property sale and should be documented as part of the sale, rather than as income payments. You should document it with a receipt for $7000 of repairs. If a contractor was hired to make the repairs, you should pay them directly and receive a receipt from them for the services rendered. Otherwise, you should try to get a receipt out of the buyer for the repairs you paid for. If that is not possible, then you just document it using your own records (a cancelled check or similar item) and a notation for your records of the amount paid, the date paid, the repairs paid for, and the person receiving the money. The tax implications of the $7000 is that you would either deduct it from income as repairs on your Schedule E or you would deduct it from the profit you received from the sale. For proper tax treatment, the buyer will have to deduct $7000 from her basis in the property and use the reduced basis when depreciating the property or selling it in the future. She is not required to report the $7000 as income, only as a reduction in the price of the property.
There is nothing that you can do other than documenting your part of the transaction. She is responsible for properly dealing with the $7000 as part of the overall purchase of the property. Unfortunately, since she doesn't have to do anything with the $7000 until she depreciates or sells the property, the chances that she will be caught if she doesn't account for the money are very slim. The IRS can't prove anything until she sells the property because she can always claim that she is planning to reduce her basis in the sale in order to account for the money.
I wish there was a better solution for you. In this case, all you can do is deal with your taxes correctly and hope that the buyer will deal with hers correctly also.
I hope this answers your questions. I will be happy to answer any follow-up questions you may have.