Investment income

[Sal221]

I invested $100k with real estate builder who used money to purchase land. Builder secured loan using land as collateral and built home. After home sold, profit was split with me 50/50. Builder provided check for $150K after 15 months along with a 1099 misc. form. How do I report this income on tax return? 

[Hal_Al · Accepted solution]

You essentially sold an investment.  

In TurboTax (TT), enter at:
- Federal Taxes tab (Personal in  Home & Business)

 - Wages & Income

Scroll down to:

-Investment Income

   -Stocks, mutual funds, Bonds, Other (Real estate is other)

Answer no, when asked if you got a 1099-B. then follow the interview. 

Unfortunately, the IRS may not match the 1099-Misc (a 1099-B or 1099-S would have been more appropriate) to your reporting the investment sale.  

If you received an erroneous 1099-Misc, you have several choices (I recommend #3):

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 old 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 8z, Schedule 1 income  (enter in TurboTax at the 1099-Misc screen and  Answer No, when asked  if it "involved an intent to earn money" [that's for workers]).     Then enter a line 8z deduction, for the same amount.  In TurboTax (TT), enter at:
   - Federal Taxes tab
    - Wages & Income
   Scroll down to:
   -Less Common Income
         -Misc Income, 1099-A, 1099-C
          - On the next screen, choose – Other reportable income -  Answer yes to Any other Taxable Income -On the next screen, Enter the number with a minus sign (-) in front.  Briefly explain at description. Call it something like "1099-Misc income reported on Schedule D"
4. Do nothing and hope you can explain it away when & if the IRS contacts you

[Sal221]

Thanks for the advise. It sounds like the builder provided incorrect 1099 form. Is a builder allowed to provide a 1099S or 1099B if he is not a broker or real estate agent? Seems like builder wanted to report his payment to me but ended up putting me in a situation which could trigger an audit. 

[Hal_Al]

Q. Is a builder allowed to provide a 1099S or 1099B if he is not a broker or real estate agent?

A. Yes.  They are more complicated.

Q. Did the builder issue the "wrong" form?

A. No. It's just an inconvenient form for you to report the income. Box 3 of a 1099-Misc is "other income".  Your situation is neither a clear cut stock sale or real estate sale.