How to Record Work Done on Rental Property in Lieu of Rent

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Maintenance work on a property in exchange for the right to live there is a barter exchange, which is still taxable by the IRS. Since cash is generally not exchanged in barter exchanges, you need to establish the fair market value (FMV) of the rent and services provided and report them on the appropriate forms. The value received by both parties is taxed by the IRS.

Determine the Fair Market Value of the work done. There are two ways to determine the FMV of the services (rent and work done). The first is to independently research what comparable rates are for rent and similar work in the area and use that research to arrive at the value of the service you provide. The second, and more common, method is for both parties to agree upon what the value of the rent and work is, and create a signed document specifying the value which can then be used to complete both returns.

Receive a 1099, depending on the rent transaction. If the rental agreement was achieved through a barter exchange, you should receive a Form 1099-B from the organization that facilitated the transaction.

Complete Schedule C or Schedule E if you are renting the building. If you rent a building and you materially participate in the activity you need to record the “income” from the work done on Schedule C. For real estate, you do not materially unless you are a real estate professional. For all other renters, you need to complete Schedule E.

Complete Schedule C or C-EZ if you are the individual renter. Schedule C is used to record the income, in the form of rent, which the renter received in exchange for the work he did.

Tips & Warnings

  • For complex returns, consult with a tax professional, such as a certified public accountant (CPA) or licensed attorney, as he can best address your individual needs. Keep your tax records for at least seven years, to protect against the possibility of future audits. Every effort has been made to ensure this article's accuracy, but it is not intended to be legal advice.

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