Internal Revenue Service Form 1099-S is used to report real
estate transactions. The form is provided to the seller of the home at closing
and includes transaction details that will assist in preparing the person’s
individual income tax return. Individuals who have received a Form 1099-S
report their personal income taxes annually on Form 1040 or Form 1040A. Form
1040-EZ is not available for use when real estate transactions need to be
reported.
Review Form 1099-S
Review Form 1099-S received for accuracy. Verify the date of
sale, the gross proceeds, the address of the real estate sold and the filer’s
identification information. The filer is the individual that sold the real
estate. The filer’s federal tax identification number is the individual’s
social security number. The transferor information applies to the buyer of the
real estate. If there are any errors on the form, contact the issuer
immediately. This information is reported to the IRS.
Calculate the Gain on Sale
Use Form 1099-S to determine the gain on the sale of the
real estate that will be reported on the tax return. The gain is calculated by
subtracting the sale proceeds from the purchase price. The cost of improvements
on the property may also be subtracted from the sale proceeds. This reduces
your reportable gain. Improvements must have a useful life of one year or more,
such as roofing, windows or additions. Improvements that are not deducted from
the sale price are regular maintenance items such as painting, lawn service or
new doorknobs. Selling expenses, including commissions, advertising fees, legal
fees and loan charges paid by the seller, are also subtracted from the sale to
reduce the reportable gain.
Record the Gain on Schedule D and Form 8949
Record the gain on the sale of real estate on Form 8949,
Sales and Other Dispositions of Capital Assets which will then carry over to
Schedule D, Capital Gains and Losses. Both Form 8949 and Schedule D are
attached to Form 1040 or 1040A. The gain is reported on either line 1,
short-term capital gain, or line 3, long-term capital gain on Form 8949. If the
real estate was held for less than one year, it is a short-term gain; if held
for more than one year, it is a long-term gain. In the event there was a loss
realized on the sale of the real estate, the loss must be reported on Form 8949
and Schedule D. However, the loss is not deductible and will not lower your
income taxes. Record the loss on he appropriate line of Schedule D but do not
include in the total reported in Column F.
Form 1099-S reports the amount of real estate taxes paid by
or charged to the buyer at the time of the real estate transaction in Box 5.
The correct amount of real estate taxes to deduct on Schedule A, Itemized
Deductions, should not include any real estate taxes reported in Box 5. Report
real estate taxes paid during the year on line 6 of Schedule A. Schedule A will
be attached to Form 1040 or Form 1040A.
Tax Filing Exception
Form 1099-S is not required to be provided in the event an
individual sold his main residence and has a gain on the sale of $250,000 or
less; $500,000 or less in the case of married individuals filing a joint tax
return. This exclusion of the gain is permitted under IRS Code Section 121.
Additionally, the gain on the sale is not required to be reported on the
individual’s tax return. However, it is advisable that the sale be reported on
Schedule D with a note on the following line that the gain on the sale is
excludable under IRS Section 121. Record “Section 121 Exclusion” in Column A of
Schedule D and the gain being excluded in Column F.
No comments:
Post a Comment