What are the tax implication for paying a contractor in full who disapears without finishing the job?
I paid a contractor in full for work on my home. He partially completed the work and skipped town. Can his refusal to refund my payment be considered a bad debt on my taxes?
- 1 decade agoFavorite Answer
According to IRS Publication 550:
"Insolvency of contractor. You can take a bad debt deduction for the amount you deposit with a contractor if the contractor becomes insolvent and you are unable to recover your deposit. If the deposit is for work unrelated to your trade or business, it is a nonbusiness bad debt deduction." That would indicate that you could claim a bad debt.
"Deduct nonbusiness bad debts as short-term capital losses on Schedule D (Form 1040). "
Schedule D is for the reporting of Capital Gains & Losses and a bad debt would count as a short-term loss. However, you can only deduct up to $3,000 of net losses (married, single = 1500) above capital gains. So if you had no capital gains (and were married filing jointly) you could claim $3,000 this year and carry over the balance to future years.
If you have capital gains this year, you can offset them by using the bad debt.
You are married filing jointly.
You have $2,000 in capital gains
You give the contractor a deposit of 10,000. He goes out of business.
You can offset the $2,000 in gains plus claim another $3,000 in losses. The remaining $5,000 you can use as a carry-forward to next year.Source(s): http://www.irs.gov/publications/p550/ch04.html#d0e... http://www.irs.gov/pub/irs-pdf/i1040sd.pdf
- Anonymous1 decade ago
No. A bad debt is based on his borrowing the money with every intention of paying you back in cash.
You can talk to a lawyer and see if this qualifies as a theft (conversion of funds) under state law, but a theft loss is reduced by 10% of your AGI and then added to your itemized deductions...so you rarely get anything for it.
The problem is, you typically add this to your basis and get the money "back" only if you have a taxable gain when you go to sell.
As for the 550 quotes. This was not a deposit once the work was started. The builder skipped town with the money--this is not a insolvent contractor.
- lapariLv 44 years ago
you are able to report a criticism against him with the licensing board and simpler business enterprise Bureau. The licensing board could permit you recognize to take him to courtroom or see a criminal expert. reckoning on the linked fee of the project, you have got the flexibility to sue him your self in small claims courtroom or activity a criminal expert in taking the case on contingency. you're saying which you have quite a few written contracts yet which you do not have a written settlement from him. If the supplies which you have incorporate sufficient tips, they could be an enforceable, written settlement -- you do no longer choose a settlement from the contractor to have a binding contract. Do they hit upon fee, the artwork to be finished, and a schedule? strategies - a million. Have a written record of your call for that he complete the artwork, and tell him which you will sue and report courtroom circumstances if he would not recommence artwork in accordance together with your settlement interior a distinctive style of days. 2. report a criticism with the Licensing Board and the simpler business enterprise Bureau, copied to him. 3. Get written estimates for overall performance of the the rest artwork from different contractors, which would be your damages in case you're able to desire to sue him. 4. seek for criminal suggestion. A attorneys' letter could get greater action from him than your guy or woman letter, and could no longer fee lots greater. you're able to desire to understand if there are any added issues which you're able to do, including making a declare on any bond that he could have presented to get a license (purely in some states). If he did any artwork with subcontractors or offered supplies on your activity, you're able to desire to could desire to discover out if he paid them or they could report liens whether you already paid your guy or woman contractor. If evidently such as you're a fraud sufferer, you will prefer to report a police report. from time to time the Courts can get you restitution as area of any plea good deal or sentencing, in the event that they discover that this guy victimized you.
- Anonymous1 decade ago
No. You did not "lend" him the money.