I received a 1099-MISC for a refund and was told to report the cost/basis as an equal amount. Where do I enter the cost/basis information?

[wcm]

I received a 1099-MISC for a refund and was told to report the income on Schedule D and then report the cost/basis as an equal amount. Where do I enter the cost/basis information?

[Hal_Al]

What were the circumstances of getting a 1099-Mic for a "refund"? That's unusual. What box number on the 1099 was the $ in? 1099-Misc does not usually go on sch D

[wcm]

Thanks for your reply.  Box 3.  Unfortunately, the CPA for the nursing home issued the 1099-MISC and will not correct it for a refund.  The family entered into a 90% refund plan when my mother-in-law entered the nursing home.  Several years after her death, they finally arranged for financing to pay back the refund.  The succession also listed this $30K refund as inheritance but IRS is going to treat it a income unless I can offset it with a negative $30K as the basis.  I just don't know where to enter this in Turbo Tax.  Thanks again for your assistance.  Bill

[Hal_Al · Accepted solution]

If your mother (or you if she was your dependent) deducted any of the money paid to the nursing home, as medical expenses, on previous year returns; then some or all of that refund is, indeed, taxable income.

Otherwise, If you received an erroneous 1099-Misc, You have several choices:

1. Ideally, you get a corrected 1099-misc from the payer
2. Don't report it on your return. Attach a copy of the 1099 and a statement explaining the circumstances. You can't e-file. From the IRS instructions for form 1099-Misc: Form 1099-MISC incorrect? If this form is incorrect or has been issued in error, contact the payer. If you cannot get this form corrected, attach an explanation to your tax return and report your income correctly.
3.. Report the income as misc line 21 income (enter in TurboTax at the 1099-Misc screen) .  Then enter a line 21 deduction, for the same amount.  In TurboTax (TT), enter at:
- Federal Taxes tab
 - Wages & Income
- “I’ll choose what I work on” Button
Scroll down to:
-Less Common Income
      -Misc Income, 1099-A, 1099-C
       - On the next screen, choose – Other reportable income - Enter the number with a minus sign (-) in front. Briefly explain at description.
4. Report the income as misc line 21 (of form 1040) income. Then take a line 36 deduction. In the forms mode, open form 1040. Scroll down to the "Other adjustments to income" "smart worksheet" and enter your deduction in line H. Type in…." adjustment to erroneous 1099-Misc income"
5. Do nothing and hope you can explain it away when & if the IRS contacts you

[wcm]

Hey Hal:   Thanks a million for answering my question.  May GOD bless you in many ways this year!  Bill

[maglib]

Just a note: No different than state tax refunds, you only would have income to the extent you actually benefitted from taking an itemized deduction for the monies,  you would actually have to redo the tax return where you claimed the money as an expense and see what impact it had to your AGI and only that amount would be taxable income in the current year.