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Understanding Required Reporting To The I.R.S.
By Matt Unangst, 23 Jan 16:20
• Meant to aid the I.R.S. in auditing and enforcing tax laws
• Seller or settlement agent required to provide information on gross value of sale
• Required form: 1099S
• Some transactions not required to be reported
• Failure to comply could result in delay
In 1986, Congress passed the Tax Reform Act. Included in this act was a provision that required certain information to be reported about every sale of real property. This provision was meant to increase taxpayer compliance and aid the I.R.S. in auditing and enforcement.
Sellers of real property are required to report the gross proceeds from a sale in a dollar amount to the I.R.S. If the seller is using a settlement agent, the agent is required to provide the information. Usually, the settlement agent is the escrow or title company, but it can be an attorney, real estate broker, or other provider of settlement services. The agent must keep record of the information for four years after the sale.
All information must be provided using Form 1099S. The settlement agent will transfer the information from this form on to magnetic media prior to reporting it to the I.R.S. There are seven categories of information asked for on the form:
• Name, address, and taxpayer identification number of seller
• General description of the property (usually just an address will do)
• Closing date of the transaction
• Gross proceeds from the transaction
• Any non-cash or non-cash equivalent property involved in transaction
• Name, address, and taxpayer ID number of settlement agent
• Real estate tax paid in advance that is to be allocated to the buyer
Form 1099S is not required for all transactions. These transactions are foreclosures, abandonments of real property, and financing or refinancing of a property. A seller is also not required to report the sale if the property in question is a principal residence and has gross proceeds of $250,000 or less ($500,000 or less for married couples filing jointly) if the seller acceptably certifies in writing that indicates that the full gain from the sale is excludable from his/her gross income. If a house is sold by multiple people, they can allocate the gross proceeds among themselves prior to reporting or each report the total amount.
Transactions for which Form 1099S is required include commercial and industrial buildings, condominiums, mobile homes affixed to real property, stock in cooperative housing corporations, and unimproved land; in addition to sales of residential properties.
The settlement agent is required to ask for the seller’s TIN in writing prior to closing the sale. If the seller refuses to give his/her TIN to the agent, the agent can either delay the transaction until the number is provided or complete the transaction and tell the I.R.S. that the seller refused to provide the number.
To help you further with any questions about real estate taxes, the I.R.S. provides a number of free brochures. These are:
Publication #523: Selling Your Home
Publication #530: Tax Information for First-Time Homeowners
Publication #544: Sales and Other Dispositions of Assets
Publication #551: Basis of Assets
To order one of these brochures from the I.R.S., call 1-800-829-3676, or visit www.irs.gov/forms_pubs/index.html.
KEYWORDS: I.R.S., IRS, home sales, house sales, form 1099s, escrow, tax reform act, real estate
SEE ALSO: Understanding Living Trusts, Understanding Mello Roos
Tags: irs i.r.s. reporting