I've entered 1099-MISC income. How do I back it out on the next line as a payback with an explanation?

[timothy-longobar]

We bought a house and financed it.  After we closed, the builder realized we overpaid.  He cut us a check for $9,000 and sent us a 1099-MISC with the $9,000 as "non-employee compensation".  He probably shouldn't have sent a 1099-MISC because we didn't provide a service or perform any work.  He was reimbursing us for overpayment, which we're going to pay back the bank with.  It's not income.  My CPA told us to "show it on the misc income line of the return as income,
(IRS will be looking for the 1099), and then on the next line, back it out as payback since you've since paid the lender back with it."  I've entered the 1099-MISC income, but I don't know to back it out?  Help, please 🙂

[AnnetteB6]

Reporting this in TurboTax will be a two-step process, first to include the 1099-MISC as income and then to make a negative adjustment to remove it.  I am including both steps in case others have a similar question but do not know the steps to first report it as income.  

To include the 1099-MISC as a part of your tax return, follow these steps:

• On the top row of the TurboTax online screen, click on Search (or for CD/downloaded TurboTax locate the search box in the upper right corner)
• This opens a box where you can type in “1099-MISC” (be sure to enter exactly as shown here) and click the magnifying glass (or for CD/downloaded TurboTax, click Find)
• The search results will give you an option to “Jump to 1099-MISC"
• Click on the blue “Jump to 1099-MISC” link
• Answer Yes you did receive a 1099-MISC
• Fill in the details from your 1099-MISC then click Continue
• Provide a short description for the reason you received the 1099-MISC then click Continue
• On the next screen titled, “Does one of these uncommon situation apply?” choose the last option, None of these apply and then click Continue
• On the next screen asking if the 1099 involved work like your main job, answer No and click Continue
• On the next screen, check the box that you received the income in 2019 and then click Continue
• Finally, choose “No, it didn’t involve an intent to earn money” and click Continue
• Answer the questions on the next couple of screens to finish the process

Now the income shown on the Form 1099-MISC has been added to your return.  Next, it will be “removed” from the return.

Follow these steps:

• Go to Federal Taxes > Wages & Income and scroll to the bottom of the screen to the Less Common Income section (expand the section by clicking Show More if necessary)
• Click Start or Update beside Miscellaneous Income, 1099-A, 1099-C
• Scroll to the bottom of the list and click Start or Update beside Other Reportable income
• Answer Yes to move forward
• Enter a brief description, such as “settlement refund adjustment,” and the amount reported on the 1099-MISC as a negative number then click Continue
• Click Done

When you see your Form 1040 Schedule 1, the amount shown on the Form 1099-MISC will be reported twice on line 8 – once as a positive amount and once as a negative amount. 

@timothy-longobar