Normally, You will issue a 1099 Misc just for services rendered. In this case your contractor should have asked for reimbursement for parts and material so each of you would have accounted appropriately for the amount that is not related to services. In your part, that should be deducted in your schedule C as cost of goods to arrive at your gross profit. As like every other issue, good record keeping is paramount for both you and your contractor.
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