Just found out I won’t be getting a 1099 so now what?

Question

First of all, thanks for reading this post. Here is the long story made short.

#1 I purchased a half acre lot in 2012 for $15,000

#2 I teamed up with a builder and signed my property over to him, he then got a hard money loan from someone else to build a home.

#3 The home will be done and sold by December 23rd, just a few days from now.

#4 The hard money Leander has the first lien and I have the second lean that needs to be paid once house is sold.

#5 I am supposed to collect $41,000 for the sale of the property.

This is where I have a few questions.

I was hoping to receive payment in January in order to pay taxes on the increase next year, since I have already sold a house this year and was the buyers Realtor on two other homes. I asked an accountant and was told that it depends on when the 1099 is issued.

Come to find out, I won’t be getting a 1099. The way I understand it, when I signed the property over to the builder, he became the owner and I don’t own the property any more. So, when the house sells on December 23rd, I won’t get a 1099, because the property is not being sold, because I can’t sell what isn’t mine. Does that make sense?

#1 So, when I receive payment, how is that recorded since I won’t be receiving a 1099?

#2 would it now be possible to delay payment from title company until January 1st because no 1099 will be issued or will a the closing date of the home be when it has to be claimed?

#3 what form will have to be used on taxes?

Your help would be appreciated. Thanks!

Ashish Acharya · Answer

Did you partner up with the builder? If so, you might contributed the property to the partnership you created. If it was a partnership, your income will be reported on K-1.

However, based on what you are saying, you actually transferred the Land to builder? You might have to sit down and talk to your accountant.

If the house was sold in 2019, getting an the 1099 is not what drives the tax reporting period. The sale itself drives it. You should be reporting the income even if you don’t get 1099.

Your transaction needs to be discussed in detail with professional.

Michael Plaks · Answer

@Shaun Hunt

There is still no way to answer your question, because we do not know what was the deal. Specifically, what did you receive in exchange of signing the property over to the builder. What was agreed upon? Were there any specific numbers? Were there any conditions? Was it in writing?

For example, if you received (which is unlikely) a formal note that said "I will pay you $41k when I sell" - you incurred taxable income at that time, not now. Now he is simply paying off the note.

If it was (also unlikely) a vague promise of "maybe I will pay you something and maybe not" - then you don't have taxable income until you receive the actual check or wire, regardless of 1099.

But since both of these scenarios are unlikely, we need to know your specifics. And when I say "we need to know", I really mean a tax expert you actually hire to help you. There're many questions to ask and documents to review. In fact, they should have been asked and reviewed before you signed the documents.

Steve Vaughan · Answer

Can't tell if you are protected with a vested interest in this property anymore or not.

What did you 'sign the property over' to the builder with?   What type of document and agreement?  Are your interests recorded with a lien, or?

Whether you receive a 1099/k-1 or not will be the least of your worries if you quitclaimed the land over. Hopefully it was a contribution to the partnership that owns it.

Account Closed · Answer

In order to collect form the escrow company you will have to furnish your Social Security number or your EIN if a LLC .  You will then have to declare  the income from the sale in the tax year it is sold. It will be up to you or accountant  to figure out your expenses  to declare the net income on your taxes .  Escrow will not be able to hold onto your funds to delay into the next tax year....@Shaun Hunt

Steve Vaughan · Answer

Please post what you find out.

it's usually pretty inexpensive to run simple but important things like conveyance past an attorney.  Worth the couple hundred bucks to ensure you're covered.

if what you have is a 2nd mortgage, the 'gain' may be considered interest and be akin to ordinary income. Ouch.

I may have heard of someone lending the value of the property, but drafting and rcording the maturity value.  An idea for future reference maybe.  Hope it works out for ya.

Shaun Hunt · Answer

@Steve Vaughan @Ashish Acharya Account Closed

First of all, thanks for responding.  You brought up some great questions that I will try to find out within a few hours.

Essentially, this is how the deal went down.  I had a property for sale, my broker, and friend, said that his contractor would like to build a house on that land. I would sign the land over, he would build a house, then I would get paid.

It is now getting close to the getting paid part.

I'll try to find out if it was a quit claim and I believe that I have a second lien and the hard money lender has a first lien.

Shaun Hunt · Answer

@Michael Plaks

Thanks for taking the time to respond.  I was waiting on a response from the title company, here is what they said:

Shaun, you were in 2nd lien position on the lot, as part of that there was a Trust Deed recorded and a note signed.  So at closing the seller will just be paying off the note to you.  We will not be issuing you a 1099 because you are not the seller.  We will record a reconveyance to release your trust deed on the property once you have been paid.

Does that help?

Shaun Hunt · Answer

This is what was recommended by a local accountant.  Would "memorialize" be better?  Thanks for everyone's help on this.  Looks like I still have lots to learn.  Most of you have forgotten what I will ever know about this.  It sure is nice to be able to ask a question and get rapid results!  Bigger Pockets Rocks!

We will treat the sale as a capital gain since you are not in the business of fix and flipping properties. We will treat it is as in investment instead. Thus it may be taxed at 0 or 15% on the net gain (sales price minus your cost basis). Technically you need to report the income when you receive it because you are a cash basis taxpayer.

Shaun Hunt · Answer

@Eamonn McElroy

Would you mind explaining 'memorialize"? I will look into that, for sure.

Eamonn McElroy · Answer

Perhaps the path forward is to "memorialize" on paper and sign off on what's already been verbally agreed to.  Hint hint...

Just found out I won’t be getting a 1099 so now what?

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