Required Reporting to the IRS on Real Property Sales
Sellers of real property are required to have certain information regarding the sale reported to the Internal Revenue Service (IRS). This mandate stems from the Tax Reform Act of 1986 and is designed to encourage taxpayer compliance and aid in enforcement efforts.
Who is Required to Report to the I.R.S.?
Sellers of real property must have their gross proceeds from the sale reported on a Form 1099S. The IRS makes the settlement agent responsible for delivering the information on this form. The settlement agent is generally the escrow agent or title company, but it may also be an attorney, real estate broker, or other person providing settlement services.
What is a Form 1099S, and What is Reported?
The Form 1099S is the reporting document used by the IRS. The information is transferred onto magnetic media by the settlement agent, who then makes the required report. In general, the information required falls into the following categories:
- The name, address, and taxpayer ID number (social security or tax identification number) of the seller(s).
- A general description of the property (usually the 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.
- Real estate tax paid in advance that is allocable to the buyer.
Which Transactions Require a Form 1099S?
Typical transactions covered currently include sales and exchanges of:
- 1-4 family residential properties (houses, townhouses, and condominiums).
- Improved or unimproved land.
- Commercial or industrial buildings.
- Stock in a cooperative housing corporation.
- Mobile homes (manufactured homes) affixed to real property.
Specifically excluded from reporting are foreclosures, abandonment of real property, and financing or refinancing of properties.
What if the Seller Refuses to Provide the TIN?
The settlement agent is required to request the transferor’s taxpayer identification number(s) (TIN(s)) before closing. If the seller fails to provide the TIN and certify its correctness, the settlement agent has two main options:
- Delay the closing of the transaction until the information is furnished, or
- Complete the transaction and report to the IRS that an attempt was made to obtain the information from the seller.
Multiple Sellers and Allocation of Proceeds
Multiple sellers may allocate the gross proceeds among themselves for purposes of reporting. If there is no allocation, an incomplete allocation, or conflicting allocations, the entire gross proceeds will be reported for each seller.
Further Information on Taxation
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.
