| Real estate sellers may have certain information regarding their sales reported to the Internal Revenue Service. This required reporting is a consequence of the Tax Reform Act of 1986, which Congress adopted to aid the IRS in its audit and enforcement efforts, and to encourage taxpayers to properly file income tax returns.
Some commonly asked questions are answered below regarding the reporting of real estate sales information to the IRS.
Who is required to report to the IRS?
Sellers of real property are required to have their gross proceeds from the sale reported on a Form 1099S. When a settlement, or escrow, agent is used, the IRS makes this agent responsible for the delivery of the information on the Form 1099S.
The settlement agent generally will be the escrow agent or title company. However, it can be an attorney, real estate broker or other person providing settlement services.
What is an IRS Form 1099S, and what will be reported?
Form 1099S is the form adopted by the IRS for submitting information required by law. The settlement agent ensures that the 1099S information is recorded in the agent's files and reported on the form to the IRS. The settlement agent is also responsible for keeping a master copy of all transactions reported.
In general, information required by the IRS falls into the following categories:
- The name, address and taxpayer ID number (social security or tax identification number) of the seller.
- A general description of the property (in most cases an address)
- The closing date of the transaction
- The gross proceeds of the transaction (even though gross proceeds do not correspond to taxable income)
- Any property involved as part of the transaction other than cash or cash equivalent
- The name, address and taxpayer identification number of the settlement agent.
On what type of transactions is a Form 1099S required?
Currently, typical homeowner transactions covered include sales and exchanges of 1-4 family residential properties such as houses, townhouses, and condominiums. Also reportable is stock in cooperative housing corporations and mobile homes without wheels.
Specifically excluded from reporting are foreclosures and abandonment of real property and financing or refinancing of properties.
What happens if the seller refuses to provide the taxpayer identification number for the Form 1099S?
Should the seller fail to provide the identification number and certify its correctness, the settlement agent may choose to:
(1) Delay the closing of the transactions until the information is furnished, or
(2) Complete the transaction and report to the IRS that an attempt was made to obtain the information from the seller.
How is the sale reported when there is more than one seller involved or when multiple sellers do not own equal interests in the property?
Multiple sellers may allocate the gross proceeds among themselves for purposes of reporting. If there is no allocation, an incomplete allocation or conflicting allocations, then the entire gross proceeds will be reported for each seller.
Where can I go for further information on taxation of real property?
The IRS provides free publications that explain the tax aspects of real estate transactions. You may wish to order:
Publication #523 "Tax Information on Selling Your Home"
Publication #530 "Tax Information for Home Owners"
Publication #544 "Sales and Other Dispositions of Assets"
Publication #551 "Basis of Assets"
To place your order, phone toll-free (800) 829-3676 |
