Dear Bogleheads,
I am a long-time reader but first-time poster. I am impressed with the collective wisdom of the forum over the years. Usually, I can get my questions answered by searching the forums or the internet. For this question, neither has provided a clear answer. Forgive this newbie for any errors with this post.
In 2019 and prior years, I belonged to a 501(c)(7) social club that dissolved and when the property was sold in 2020 the members/owners received a portion of the proceeds after paying applicable taxes and fees. The club distributed the <$5k to each active member/owner and issued a 1099-MISC for the amount at the request of the accountants. I am not sure how to handle this on taxes. I have listed it as miscellaneous income, which H&R block software defaults to “Prizes, Awards” on Schedule 1, Line 8. There is some confusion as to whether it should be treated as income or capital gains (if the latter, what is the basis and what to do about the 1099-MISC?). This Tax Professional thinks that nothing is owed (https://www.justanswer.com/tax/dns6w-pr ... -sold.html), but I disagree with the logic after reading some IRS literature.
Since it is so little money, my inclination is to report it as income so I pay the highest tax to avoid trouble later. However, is “Prizes, Awards” an acceptable claim. I haven’t found out how to change the default, but perhaps there is another section it should be claimed. If somebody has experience with this situation, I would be interested in knowing how it was handled.
Thanks in advance,
ND