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Discussion:Reporting Cash for Keys income
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Discussion Forum Index --> Advanced Tax Questions --> Reporting Cash for Keys income
Discussion Forum Index --> Tax Questions --> Reporting Cash for Keys income
Ajwilborn (talk|edits) said:
| 19 January 2010
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| I have a client who received $1500 reported on a 1099-MISC, box 7 non-employee compensation for the cash for keys program. The cash for keys program is an incentive for home occupants to move out (without taking the kitchen sink). In this case, my client was renting a property that was foreclosed on. The bank gives the occupant money in return for the keys (and possession of the property). In my client's case, the landlord was long gone and never returned my client's deposit. While I wouldn't construe the bank's incentive as a refund of my client's rental deposit, I wouldn't classify this money as an activity that would warrant filing sched C and SE. Please help. Any insight provided would be greatly appreciated.
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DaveFogel (talk|edits) said:
| 19 January 2010
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| A “cash for keys” offer is a deal which a lender or subsequent purchaser may make with a homeowner or tenant, in which the homeowner or tenant is given a cash settlement in exchange for vacating the foreclosed home. The homeowner or tenant receiving the “cash for keys” payment will receive a Form 1099 and must report it as ordinary income. I rather doubt that it is "non-employee compensation" since no services were rendered. Report the payment as "other income" on Form 1040, line 21.
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Tax Writer (talk|edits) said:
| 19 January 2010
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| I agree with Dave. I would report it as "other income" not subject to SE tax. The bank probably won't correct the 1099. The taxpayer will probably get a notice, and you can give him a form letter to respond or just tell the client to expect it and you can deal with it when it arrives.
Tax Writer
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Kevinh5 (talk|edits) said:
| 19 January 2010
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| remember to deduct the basis in the keys though. LOL.
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DaveFogel (talk|edits) said:
| 19 January 2010
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| The client might have a nonbusiness bad debt for the lost rental deposit if the landlord is "long gone."
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Harry Boscoe (talk|edits) said:
| 20 January 2010
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| *IF* the tenant's rights in the lease are a capital asset would this income be the proceeds of the sale/surrender of a capital asset, and taxed as capital gain? And could the "thieved" deposit be basis in the asset sold/surrendered?
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DaveFogel (talk|edits) said:
| 20 January 2010
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| Harry, hadn't thought of the capital gain treatment for the "cash for keys" payment. Might be a good argument. See Sec. 1241 and Reg. 1.1241-1(a). However, I think that the security deposit is a separate issue, so it wouldn't be considered as basis.
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PVCC-CCIFP (talk|edits) said:
| 2010-01-20
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| I am enclined to agree with Harry as to the characterization of the underlying transaction, and would read the "agreement" with the bank as to what the tenant gave up in exchange for the cash payment. PVCC-CCIFP 22:16, 19 January 2010 (CST)
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Mhewes (talk|edits) said:
| 16 February 2013
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| Only thing I would add to this is that reporting amounts from 1099-MISC box 7 on line 21 has caused me problems in the past, as in AUR notices. Consider reporting on Schedule C with a corresponding deduction called "Cash for keys reported on 1040 line 21"
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Mhewes (talk|edits) said:
| 16 February 2013
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| Wow i just noticed this is a 2010 discussion!
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