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My brother has a friend and her two children living with him. They get to live there based on the fact that she does farm work (provides a service). They have agreed that the services and rent equal out to be $1,000 a month. Accumulative $12000 a year. I understand that they both have to claim the $12,000 as income but does my brother also get to expense out his $12,000 as an expense to the Farm (Schedule F)? I have read the IRS site on bartering and can not get a clear answer...Any advice would be appreciated. Thanks!

  • I'm confused on a couple of points: Does your brother own the farm and the "barter" is between him (the owner) and his friend (doing work for him)? Or is the farm owned by someone else? I'm also confused why two people need to claim the $12,000/yr, although that may be related to my question about who owns the farm here... – user32479 Feb 20 '16 at 4:10
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I'd suggest you talk to a tax accountant on this one. The combined taxes on $24,000 is a substantial amount of money, likely at least several thousand dollars a year, so anything you can do to legally reduce your tax liability could pay off big.

I would think that your brother could at least deduct any costs involved in providing the housing, analogous to costs for a rental property.

Also, bear in mind that for tax purpose you want to value this at the lowest value that you can justify. I'm not talking about fraud here, but giving yourself the benefit of the doubt. If you asked a realtor, "What is the fair market rental value for this property?", and she said "between $800 and $1100 per month", I'd write down $800, maybe $850.

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