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Level 4

Paid contractor $40k and subs directly for home construction. I’m not a business owner, so can I deduct his fees as non-employee compensation on my personal income taxes?

 
6 Replies
Level 20

Paid contractor $40k and subs directly for home construction. I’m not a business owner, so can I deduct his fees as non-employee compensation on my personal income taxes?

If you do not purchase and sell real estate to customers in the ordinary course of a trade or business (i.e., you are not a developer, dealer, etc.), then you cannot deduct the amount paid for construction.

 

If this is your personal residence or an investment property, you can add the amount paid to general contractors and subs for improvements/construction to your cost basis.

Level 4

Paid contractor $40k and subs directly for home construction. I’m not a business owner, so can I deduct his fees as non-employee compensation on my personal income taxes?

Is this something that’s reportable on my personal income tax return. Will it be if it me in yielding a higher return?  if so where is it reportable?  I’ve kept every invoice from start to finish...

Level 4

Paid contractor $40k and subs directly for home construction. I’m not a business owner, so can I deduct his fees as non-employee compensation on my personal income taxes?

Is this something that’s reportable on my personal income tax return. Will it be if it me in yielding a higher return?  if so where is it reportable?  I’ve kept every invoice from start to finish...

Level 4

Paid contractor $40k and subs directly for home construction. I’m not a business owner, so can I deduct his fees as non-employee compensation on my personal income taxes?

Is this something that’s reportable on my personal income tax return. Will it be if it me in yielding a higher return?  if so where is it reportable?  I’ve kept every invoice from start to finish...

 

just seems like my contractor will be paying taxes on that money, and so will I if not otherwise. 

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Level 20

Paid contractor $40k and subs directly for home construction. I’m not a business owner, so can I deduct his fees as non-employee compensation on my personal income taxes?

Costs to buy, build or improve a property are NOT mentioned or deducted on an Income Tax Return ... instead they are totaled and become the cost basis of the home to be used when you dispose of the property. 

Level 20

Paid contractor $40k and subs directly for home construction. I’m not a business owner, so can I deduct his fees as non-employee compensation on my personal income taxes?

Paid contractor $40k and subs directly for home construction.

I assume this home will be your personal residence when completed.

I’m not a business owner, so can I deduct his fees as non-employee compensation on my personal income taxes?

No. Not one single penny you pay to anyone or any business entity for the construction of your personal residence is reported on any tax return.  But you will need to keep your receipts as proof of what you paid and to whom you paid it. When completed, whatever you paid for the house (as well as the land you built it on) is referred to as your "cost basis". This will matter in the year that any one or more of three things happens in your life.

1) You convert the property to a rental or other qualified business use.

2) You sell the property.

3) You die.

If you will have a mortgage on this property, then the only thing that will be deductible on  your personal tax return will be the mortgage interest payments you make each year, as well as property taxes paid each year. That's it. (Assuming the property is/will be your personal residence.)

When you sell the property in the future, your taxable income in that sale is determined by subtracting what you paid for the house and lot in the year you purchased it, from the price you sold it for. The difference between the two is your taxable gain (or loss if you sell it for less than you paid for it.)

Now there are lots of rules to exempt taxable gain from taxation. But I'm not going to bother with that here and now because at this point in time, disposing of the property is most likely not in your short term plans.