You're right, the $4,500 is not taxable income, it is a reduction in the amount you paid for the RV. You have several choices for how to handle this:
- Don't report it. Instead, attach a copy of your 1099-MISC and a statement explaining what happened. You won't be able to e-file your returns - you will have to print and mail.
- Report the Income on schedule C - Profit or Loss from Business (Sole Proprietorship), and then take a deduction for the same amount under other expenses. You will have to upgrade to the Self Employed version of TurboTax.
- Report it as Miscellaneous Income on line 21, then enter a deduction on line 21 for the same amount.
- Do nothing and explain the situation to the IRS when they send you a letter.
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