Tax implication on partner split at sale of property

[Aaron Scott]

So I'm going to lay out the situation the best I can and ask advice. First off, I'm in Alabama. Myself and a partner went in as partners on a flip deal, where he bought the house and we split the costs of rehabbing. I did about 1/2 of the work and took sole responsibility for contracting out any other work that I didn't have the time to do on my own. Since were early on in our partnership, where we're still figuring out the proper structure, profits were to be split 50/50 at sale of property and I basically agreed to not be paid for my time/labor (although it is partially accounted for in the profit split). Not that this probably matters, but this is work outside my normal day job, so mostly all afterhours and weekends. House is done and sold for a successful profit. We did not form an LLC or other entity, and yes I understand things shouldn't be done the same as we did on this one in the future. My real questions is as follows: Since we split the rehab costs and agreed to split profits, my partner first wrote me a check to reimburse me for rehab costs that I had in, and then a separate check that covers our 50/50 split of profit but basically wrote the check out as payment for my work on the house instead of stating it was a profit split. Speaking in terms tax implications, I guess my concern is that it might be treated differently if shown strictly as profit vs payment for labor. There may be no difference, but I wanted to be sure before tax season gets here. I plan to talk to a local CPA if needed (and of course when taxes need to be done), but so far am having trouble finding those with real estate backgrounds, at least by recommendation by those I trust. Thanks for any help and sorry for the long winded topic!