Bartering is an exchange of property or services. You must include in your income, at the time received, the fair market value of property or
services you receive in bartering. If you exchange services with another person and you both have agreed ahead of time as to the value of the
services, that value will be accepted as fair market value unless the value can be shown to be otherwise.
Generally, you report this income on Schedule C, Profit or Loss From Business, or Schedule C-EZ, Net Profit From
Business (Form 1040). But if the barter involves an exchange of something other than services, such as in Example 3 below, you may
have to use another form or schedule instead.
Example 1.
You are a self-employed attorney who performs legal services for a client, a small corporation. The corporation gives you shares of its stock as
payment for your services. You must include the fair market value of the shares in your income on Schedule C or Schedule C-EZ (Form 1040) in the
year you receive them.
Example 2.
You are self-employed and a member of a barter club. The club uses "credit units" as a means of exchange. It adds credit units to your account
for goods or services you provide to members, which you can use to purchase goods and services offered by other members of the barter club. The club
subtracts credit units from your account when you receive goods or services from other members. You must include in your income the value of the
credit units that are added to your account, even though you may not actually receive goods or services from other members until a later tax year.
Example 3.
You own a small apartment building. In return for 6 months rent-free use of an apartment, an artist gives you a work of art she created. You must
report as rental income on Schedule E, Supplemental Income and Loss (Form 1040), the fair market value of the artwork, and the artist must
report as income on Schedule C or Schedule C-EZ (Form 1040) the fair rental value of the apartment.
Form 1099-B from barter exchange.
If you exchanged property or services through a barter exchange, you should receive
Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or a similar statement
from the barter exchange by January 31, 2002. It should show the value of cash, property, services, credits, or scrip you received from exchanges
during 2001. The IRS will also receive a copy of Form 1099-B.
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