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Say Alice writes Bob a computer program, and in exchange, Bob remodels Alice's house. If they were charging money instead of bartering services, either of them would have charged several thousand dollars for their service.

What sorts of tax implications does this transaction have? Do Alice and Bob have to figure out the fair market value of their services and report that as income or something?

user2357112
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2 Answers2

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Do Alice and Bob have to figure out the fair market value of their services and report that as income or something?

Yes, exactly that. See Topic 420.

Note that if the computer program is for Bob's business, Bob might be able to deduct it on his taxes. Similarly, if the remodeling is on Alice's business property, she might be able to deduct it. There might also be other tax advantages in certain circumstances.

Brythan
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It's called bartering and the IRS has a page titled Four Things to Know About Bartering. The summary is -

  • Organized barter exchanges
  • Barter income
  • Tax implications of bartering
  • How to report

The bottom line is this is taxable.

JoeTaxpayer
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