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.
Record Real Estate Taxes on Schedule A
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.
- Internal Revenue Service: Instructions for Form 1099-S
- Internal Revenue Service: Publication 523 – Selling Your Home
- Internal Revenue Service: Instructions for Schedule D
- Internal Revenue Service: Instructions for Schedule A
- Internal Revenue Service: Schedule D
- Internal Revenue Service: Schedule A
- Internal Revenue Service: Form 8949