My brother and his wife are renting part of my house from me (in Kansas). Due to financial hardship on their part, I've agreed to let him do some house repairs in lieu of paying rent for a few months. How do I need to track this, both for reporting the rent income on my own tax return, and for the amount I pay him, for him to pay taxes on that income.

I could obviously record it as normal rent income and normal labor for hire... but I'm wondering if there is there any tax advantage to bartering this way (as I believe there can be when bartering goods)?

  • Your brother is crashing with you and helping around the house? Don't tell the IRS at all, why should you both pay taxes for that? – Aaron McMillin Sep 29 '16 at 17:55

From the IRS's Recordkeeping Tips for Barter Transactions:

Recordkeeping Tip

Once you have agreed to barter transactions with a vendor or customer, you must enter the transaction accurately in your accounting and tax records. Whether you maintain your books and records manually or use one of the many accounting and tax software packages on the market today, you need to keep and record some basic information about your barter transactions.

Clearly mark or file all barter income and expense documents as “bartering,” and retain all original source documents pertaining to your barter transactions:

  • Sales receipts and invoices
  • Barter exchange statements and Forms 1099-B, Proceeds From Broker and Barter Exchange Transactions

Bartering Products or Services

The most important barter tax accounting concept is that the IRS treats bartering as income received, whether you use accrual-basis or cash-basis accounting.

  • So can I assume from this answer that there is no possible tax benefit for bartering in this case? – Flimzy Sep 17 '11 at 21:50
  • Bartering won't help you garner any tax benefit. The tax code attempts to ensure that barter doesn't have such advantages. Otherwise, people would do it just to avoid the taxes. – D Krueger Sep 17 '11 at 23:09
  • If I recall, for bartered goods, you're allowed to use the cost of goods sold, rather than the retail price, when recording the barter. Is this still accurate? I guess I would consider that a "tax advantage." But that may not be possible for bartered labor. – Flimzy Sep 17 '11 at 23:20
  • @Flimzy No, that's not accurate any longer. The link I gave in the answer contains the statement that: "The fair market value of property or services received through barter is taxable income." I'm not sure if you have to record it at all, though. It is your brother living at your house and doing repairs on that house. Does that count as a business relationship or just a family relationship? I don't know that work done on a family home by family members is taxable. – D Krueger Sep 18 '11 at 0:51
  • Okay, thanks... I'll look into house work done by family members... thanks for the tip. – Flimzy Sep 18 '11 at 5:09

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