Tax

Have a tax question? Ask a tax Expert

Ask an Expert,
Get an Answer ASAP!

Contractor received loan draws from the bank and 1099.

Customer Question
Turned over funds to borrower...
Contractor received loan draws from the bank and 1099. Turned over funds to borrower for disbursement. Contractor issues 1099 to Borrower for total amount less his portion for his services, then the borrower needs to 1099 all subcontractors he paid (with the exception of the GC who initially received the funds)...correct? Now, how does the borrower report the income (that was ultimately used for materials) on his tax return to offset the difference between the amount he received and the amount he reported on the 1099's to subcontractors when the project is still ongoing in to the next tax year?
Example: $148K from bank to GC. $140k from GC to borrower. $45K from Borrower to Subs. $95k in materials.
Submitted: 2 years ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Answered in 9 minutes by:
2/29/2016
Tax Professional: Tax.appeal.168, Tax Accountant replied 2 years ago
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 4,714
Experience: 3+ decades of varied tax industry exp. Tax Biz owner
Verified

Q: Now, how does the borrower report the income (that was ultimately used for materials) on his tax return to offset the difference between the amount he received and the amount he reported on the 1099's to subcontractors when the project is still ongoing in to the next tax year?

A: The 95k in materials is reported as Cost of Goods (COGS), on page 2, Part III, of the Schedule C.

Let me know if I can be of further assistance to you regarding this matter. If all is clear, a positive rating of 3 or more stars is appreciated so that I may receive credit for assisting you.

Ask Your Own Tax Question
Customer reply replied 2 years ago
COGS? I guess I left out a small detail, the borrower is the homeowner. Still COGS even though they were bought and not "sold"? Sorry, I'm just trying to do the 1099 portion for both sides. I don't do his tax returns (obviously), and I am very unfamiliar with this construction loan process, as is his GC, unfortunately. I just want to make sure that I get it right before the 1099 deadline.
Tax Professional: Tax.appeal.168, Tax Accountant replied 2 years ago

I thought you were referring to an independent contractor. However COGS will still apply. Line 36 of Part III reads as follows; Purchases less cost of items withdrawn for personal use. This is where the 95K will be entered.

Link to Schedule C:

https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

Ask Your Own Tax Question
Customer reply replied 2 years ago
the homeowner (borrower) will treat this project as a business? That doesn't seem right. I understand that he would have to report any excess funds from the construction loan as income, but he wouldn't be able to report a loss from building a house, it is just the cost of building the house. This is what is confusing. I understand from the perspective of the GC...Schedule C makes sense. But from the homeowner (borrower) perspective, I just don't get it. At the end of the project, he will have a home and a mortgage for the amount borrowed. I wouldn't think that he would report any income or loss from the entire project, rather the actual cost (whether borrowed or paid out of pocket) would just be the basis of the home. However, I can't figure out how to avoid reporting the funds from the lender as income due to the 1099 transactions and the fact that the home is not finished yet. Perhaps I should do all the 1099 transactions from the GC and leave the borrower out of it, even though the borrower actually disbursed the funds for subs and materials. However, I work for the homeowner (borrower), so that is easier said than done!
Tax Professional: Tax.appeal.168, Tax Accountant replied 2 years ago

My apologies, I see where you are referring to the borrower as being the person wanting to deduct the $95k. The cost of the materials gets added to the cost basis of the property and is not deductible until the property is sold. The borrower is not allowed to take a deduction at this point.

Ask Your Own Tax Question
Customer reply replied 2 years ago
any recommendations? Or did I answer my own question? :)
Tax Professional: Tax.appeal.168, Tax Accountant replied 2 years ago

No, you don't have to answer your own question, maybe someone else can. I am releasing the question back into the queue.

Ask Your Own Tax Question
Customer reply replied 2 years ago
Thanks for your help! I should have done a better job with the details to start!
Tax Professional: Lev, Tax Advisor replied 2 years ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,978
Experience: Taxes, Immigration, Labor Relations
Verified

My understanding is that the Contractor is NOI a borrower and did not receive a loan - BUT received a payment for services - which the bank is reported on form 1099misc.

If the contractor is cash based taxpayer - that amount is reported into his/her income as it was constructively received.

That is regardless if the project is overlapping two tax years.

If the contractor is an individual - that amount is reported on schedule C as gross income.

Expenses are correspondingly deducted.

The cost of materials will be deducted an amount paid to subcontractors as well - and will be reported on forms 1099misc sent to each subcontractor who is paid more than $600.

If you as a general contractor HIRE teh borrower to perform some work - that amount will be reported the same way as for other subs.

If you allow the borrower to purchase some materials - be sure to collect receipts and keep for your record.

If you simply return some money to the borrower - you are still responsible for that amount as it is reported to you as a contractor.

Questions?

Ask Your Own Tax Question
Customer reply replied 2 years ago
I am working for the borrower. Borrower controlled funds because it was GC's first project of complete home build and borrower did not trust GC having control of the money and wanted to ensure that work was satisfactory. Turns out GC was useless and borrower has had to hire and control the majority of the project. Borrower has receipts for $150k+ spent on project in 2015. So, let's go from another angle and assume the borrower received the funds directly from the bank and the corresponding 1099. How does the borrower handle the reporting of the income shown on the bank's 1099 when the funds are being used to construct a personal residence? Would he use Schedule C as if he were a contractor and given the facts, only report expenses up to the amount of the bank 1099 to result in a $0 profit/loss? He has two other legitimate sole proprietor businesses with their own Federal ID's plus wage income from a separate employer. So, this schedule C would use his personal Tax ID as if he was a contractor for this project? I realize it would be much easier if the so-called GC would handle the entire situation, but at this point that is not going to happen given the filing deadline.
Tax Professional: Lev, Tax Advisor replied 2 years ago

You wrote that the Borrower controlled funds - that is OK - but the control is exercised but but taking over the GC - but negotiating with the bank that funds are provided in steps upon approval from the borrower.
Based on your explanation - the borrower is taking over and wants to act as a GC not only monitoring the building process, but having an authority to hire subs and purchase materials.
That is not how the contraction loan is working.
In such situation If the bank agrees to provide funds directly to the borrows - that would be the situation you want.
If the bank disagrees - unused funds must be returned to the bank - and the borrower would likely need to present a different GC who will take over the project.

It is possible that the borrower will present himself as the GC - subject to the bank approval.

Ask Your Own Tax Question
Customer reply replied 2 years ago
Unfortunately, I cannot change what has already happened. Therefore, I would like to know how this situation would be handled if the borrower received the funds to build home and received the 1099 from the bank for the funds received when the project was not finished by the end of the tax year. Would he use Schedule C as if he were a contractor and given the facts, only report expenses up to the amount of the bank 1099 to result in a $0 profit/loss?
Tax Professional: Lev, Tax Advisor replied 2 years ago

The issue is not that the borrower received funds - that is a loan for the borrower and as he is responsible to pay that loan back - that is not his taxable income.

The issue woudl be with form 1099misc that is sent to contractor - as you originally pointed out - and should NOT be sent to the borrower.

If the bank sent 1099misc to the borrower - that is not correct - and you would need to communicate the bank asking to correct that mistake.

If you take a position that the borrower is acting as a general contractor - and that is his business activity - then - you are correct - income woudl be reported on schedule C as for self-employed person - and he will be responsible for both - income and self-employment taxes on net business income.

However - because the project is still ongoing in to the next tax year - and not all funds were spent during the tax year - I do not see how you could report zero profit/loss.

I would expect to see a positive income.

Ask Your Own Tax Question
Customer reply replied 2 years ago
The borrower has actually paid out more than he received from the construction loan in 2015. However, can we just get around the right or wrong of this specific case and help me to understand how this would work if I am acting as my own GC to build my personal residence, would the bank still send me a 1099-Misc for the funds released? If so, how would I avoid reporting funds as income that will eventually be in the form of a mortgage?
Tax Professional: Lev, Tax Advisor replied 2 years ago

The borrower may act as a general contractor - that is not an issue - however as I mentioned - in this case - there should NOT be any reporting forms

Whether the bank agrees to accept that person as a general contractor - that is another issue - there might be some additional requirements.

But if expenses are more than reported income - I do not see any issues from IRS prospective.

Ask Your Own Tax Question
Customer reply replied 2 years ago
to clarify, if the bank paid the construction loan directly to the borrower, a 1099 would not have been issued to the borrower, correct?
The borrower is frustrated and is telling me to just show that the GC paid the funds to him (the borrower) and he will take care of it from there. However, I need to understand the tax consequences before "following orders" so that I can help him fully understand the situation along with the pros/cons and an explanation if had it been done differently.
Tax Professional: Lev, Tax Advisor replied 2 years ago

That is correct - if the money are issued to the borrower - there is no reporting form.

However based on current practice - the bank is financing construction and is using the property to be built as a collateral.

Ask Your Own Tax Question
Tax Professional: Lev, Tax Advisor replied 2 years ago

They do not want just to give the money to the borrower - so the borrower will use the loan as he wish - but ONLY for the construction as agreed.

When the borrower just takeover the construction - that might be a violation of his agreement with the bank - but that woudl not be a concern of the IRS.

Whether the borrower is acting in the capacity of the general contractor or subcontractor - he is a self-employed person.

.

I appreciate if you take a moment to rate the answer.
Experts are ONLY credited when answers are rated positively.
If you still have any doubts, need clarification - please be sure to ask.
I am here to help you with all tax related issues.

Ask Your Own Tax Question
Was this answer helpful?

How JustAnswer works

step-image
Describe your issueThe assistant will guide you
step-image
Chat 1:1 with a tax professionalLicensed Experts are available 24/7
step-image
100% satisfaction guaranteeGet all the answers you need
Ask Lev Your Own Question
Lev
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,978
32,978 Satisfied Customers
Experience: Taxes, Immigration, Labor Relations

Lev is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,338 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,495 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

PhillipsEsq.

PhillipsEsq.

Attorney-at-Law

59 satisfied customers

B.A., M.B.A, J.D.

Robin D.

Robin D.

Senior Tax Advisor 4

15,272 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,655 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

< Previous | Next >

Related Tax Questions
Maryland personal property tax return. Is medical billing
Maryland personal property tax return. Is medical billing software (not canned software) personal property?… read more
Alexander Efros
Alexander Efros
Masters of Business Administration (MBA)
42 satisfied customers
I work as independent contractor and have some 1099 income
Hello, I work as independent contractor and have some 1099 income throughout the year. I generally file return once every year but I was told to pay 1099 taxes quarterly which would be better. If I ne… read more
Barbara
Barbara
Enrolled Agent, Paralegal
5,263 satisfied customers
I am paying an individual as an independent contractor. I
I am paying an individual as an independent contractor. I believe I should withhold and report on the 1099 I send him. How much should I withhold? … read more
Lev
Lev
Tax Advisor
32,978 satisfied customers
Can a self empolyed person deduct health insurance premiums
Can a self empolyed person deduct health insurance premiums as business expense … read more
Barbara
Barbara
Enrolled Agent, Paralegal
5,263 satisfied customers
I'm self employed, and file sole proprietor each year. This
I'm self employed, and file sole proprietor each year. This year I made 50K, and if I do not add any deductions I will pay 5K in taxes. If I do add deductions it will show that my expenses and truck m… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
2,371 satisfied customers
VA income tax return form 760, Line 16, “ Taxable Income -
VA income tax return form 760, Line 16 , “Virginia Taxable Income - Subtract Line 15 from Line 9” what are the two bubbles “DTD” and “LTD” ? Should I fill in one ?… read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
I am self-employed (1099-Misc Realtor). If my Taxable Income
I am self-employed (1099-Misc Realtor). If my Taxable Income is $0 even though my adjusted Income is $58,000, is this unusual or something that is so out of balance it could cause a red flag to the IR… read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
I filed a personal tax return because I paid myself out of
I filed a personal tax return because I paid myself out of my small business LLC. I then tried to file a small business LLC sole proprietor tax return for my business and it was rejected. How do I cha… read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
Self employed. after deductions, my taxable income is $4000.
self employed . after deductions, my taxable income is $4000. will i have to pay tax on that amount? thank you … read more
Cole Parker
Cole Parker
Principal/CPA
Bachelor\u0027s Degree
111 satisfied customers
I am an independent contractor or self-employed with
I am an independent contractor or self-employed with Colonial Life. I am 1099. So that I am not penalized in 2019 I need to send in an estimated tax payment each quarter. I am 66 yrs old and my wife i… read more
Lev
Lev
Tax Advisor
32,978 satisfied customers
A Form 1099-MISC was issued to Estate of a deceased person
A Form 1099-MISC was issued to Estate of a deceased person that was an attorney, and reported in Box 14, Gross Proceeds paid to an attorney. How is this reported on the Estate return?… read more
Cole Parker
Cole Parker
Principal/CPA
Bachelor\u0027s Degree
111 satisfied customers
I got a 1099-misc from a former employer. They reported
I got a 1099-misc from a former employer. They reported income that I earned as a result of stocks held in my name since 2007 when I was an employee. But, they reported the amount in box 7, which mean… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
If I worked as an independent contractor for a company
Hi if I worked as an independent contractor for a company located overseas and did not receive a 1099 form am I still required to file it on my tax return?… read more
Lev
Lev
Tax Advisor
32,978 satisfied customers
OH State income tax - Schedule A - personal tax return line
OH State income tax - Schedule A - personal tax return line 31. 1. What is the difference between "survivorship benefits" and "pension continuation benefits"? * New client for me. * OH resident * Spou… read more
Barbara
Barbara
Enrolled Agent, Paralegal
5,263 satisfied customers
Is a schedule C required when 1099's are received even if I
Is a schedule C required when 1099's are received even if I am not going to itemize? I have two 1099's for 2017 but only made about $2000 combined and really don't have any deductions and the online t… read more
Tax.appeal.168
Tax.appeal.168
Tax Accountant
4,714 satisfied customers
Taxpayer amended 2015 tax return to report schedule C
Taxpayer amended 2015 tax return to report schedule C income. Note schedule C was never file on original return. Can taxpayer claim Sec 179 deduction on the amended return for 2015… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
2,371 satisfied customers
TAX: Taxpayer received form 1099-Misc with income reported
TAX: Taxpayer received form 1099-Misc with income reported in box 7 (non-employee compensation) of $4189. The taxpayer performed services as a Substitute Teacher. Is this income reported on SCH C and … read more
Carter McBride
Carter McBride
LLM
1,139 satisfied customers
When issuing a 1099 misc to an independent contractor to
when issuing a 1099 misc to an independent contractor to whom we have paid more than $600 do we include the amount we paid them for expense reimbursement? For instance, if our IT contractor bought a c… read more
Carter McBride
Carter McBride
LLM
1,139 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x