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If you bought or sold real estate during the tax year, you may be required to file Form 1099-S with your individual or business tax return. What is a 1099-S Form, and when do you need to file it? Here’s a brief guide that explains everything you need to know about IRS Form 1099-S reporting.
What is a 1099-S Form?
IRS Form 1099-S is used to report proceeds from real estate transactions. The real estate transactions you’d report on IRS Form 1099-S include:
- Permanent structures
This form needs to be filed any time there’s an exchange of real estate, whether it’s a sale or exchange. The filer will need the following information to report Form 1099-S:
- The filer’s name, address, and phone number
- The filer’s tax identification number or social security number
- Transferor’s name, address, and phone number
- Transferor’s tax identification number or social security number
- The address of the exchanged property
- Date of closing
- The gross proceeds of the sale
- Indication if transferor received property or services as part of sale
- Indication if transferor is a foreign person, partnership, estate, or trust
- Amount buyer paid in real estate tax
What is a 1099-S Form Used For?
The main purpose of IRS Form 1099-S is to ensure that sellers are reporting all of their capital gains on their tax return, and paying the appropriate amount of taxes to the IRS. Any organization that’s involved in the sale of real estate must also file a Form 1099-S.
If you’re reporting Form 1099-S because you sold your primary residence, then you’ll report the sale of the home on Form 8949 and Schedule D. If you’re reporting Form 1099-S because you sold a timeshare or vacation home, then you’ll also report the sale on Form 8949 and Schedule D. The same rules apply if you inherited the property.
If you’re filing Form 1099-S for investment property or inherited property, you’ll report the sale on Schedule D.
Business or Rental Use
If you’re filing Form 1099-S for the sale of a business or rental property, you’ll report the sale on IRS Form 4797 and Schedule D.
How to Complete Form 1099-S
The process for reporting Form 1099-S is different depending on whether you’re the buyer or the seller.
IRS Form 1099-S Reporting Process When Buying
There are a few different ways you can handle the 1099-S Form if you’re buying property. First, you can include a “designation clause” in the purchase agreement that makes the seller responsible for reporting IRS reporting on the sale. You could also ask the seller to complete IRS Form W-9 and part of the closing package. Once the W-9 is completed, it’ll have all the information you need to file Form 1099-S.
If you aren’t able to secure a designation clause or if you’re unable to get the W-9, you can put together a “letter of instruction” and send all of the appropriate forms for the seller to fill out for you. A qualified tax professional can help you in this process.
Irs Form 1099-S Reporting Process When Selling
When you’re selling a property, you’ll file your own Form 1099-S because you’ve got all the information that’s required to file on. Complete all the information on the form, and also complete Form 1096. If you’re selling multiple properties, you need to fill out separate 1099-S forms, but you only need to fill out one Form 1096—you’ll just add up the total amounts from each 1099-S.
Whether you’re filing as a buyer or seller, be sure to read the IRS Form 1099-S instructions before you start.
When Do I Have to Report Form 1099-S?
You must report Form 1099-S when you file your individual tax return, although you can always request an extension. If you don’t file your 1099-S on time, then the IRS can begin imposing penalty fees. The best way to make sure your Form 1099-S is properly completed on time is to enlist the help of a tax professional when you’re buying or selling property.