We acquired a Fannie Mae Homestyle Renovation Loan for the purchase of our main residence. We were required to hire an outside general contractor to satisfy the lender's requirements, however, my husband did all of the renovation work. We know a General Contractor who was willing to basically be a pass through guy so that we could acquire the loan, then he would be paid from the lender then pass the money to us so we could be reimbursed for the work done on our home (materials only, no labor was billed/charged by us personally). That being said, upon completion of the final inspection, the lender issued a check to our General Contractor for payment, and then he wrote a check to us for the same amount so we could be reimbursed for our material purchases (which are equal to the amount specified in our loan agreement.)
My question is this: Since our General Contractor will likely be receiving a 1099 of sorts from our lender for their payment to him, how do we need to handle this transaction for tax purposes? Should the General Contractor also issue us a 1099 and we claim our expenses against that income or should we provide receipts to our General Contractor which equal the check amount for him to expense so it will cancel out that income? And it's part of our loan amount, so how is this handled in general?