We recently entered an agreement with a neighbor to buy his house, as part of a contingent sale. We just sold our house, and we are awaiting the closing. But we have one thing we still need to settle, which is some work that our neighbor had done on his house that we requested; in particular a refurbished deck.
I know that the proper way to do this would have been including it in the contract we had written up, but we just didn’t know how much he would actually be able to do. We were both in a rush to get the houses ready for market, and he pretty much had to stop our projects mid-way. For that reason, we didn’t want any special improvements holding up our contract. The plan was just to pay for his work once the dust settled.
But now he is concerned that this will look bad: that if we write him a big check for his labor, it look like he is dodging excise tax. It seems to me, if we pay him on the books ( ie: as taxed income ) and he doesn’t claim it as an improvement for tax deductions, then it should be like any other paid service. Yes, he did the work before the sale, but does that matter? I don’t know if there are specific laws we might run into here, so I’m hoping to run this by everyone.
Thanks for any advice!