Form 1099-S Instructions: A Box-by-Box Explanation

Form 1099-S, Proceeds From Real Estate Transactions, is an information return used to report the sale or exchange of real estate to the Internal Revenue Service (IRS). The form documents the gross proceeds from a transaction, providing the IRS with third-party verification to help enforce tax compliance on capital gains.

Determining Who Is Responsible for Filing

The responsibility for filing Form 1099-S falls to a specific person involved in the transaction, determined by a hierarchy set by the IRS. The primary obligation rests with the person responsible for closing the transaction, which is often the settlement agent, such as a title company, escrow company, or an attorney.

If no one is responsible for the closing, the duty shifts to the next party in line. The hierarchy of responsibility is as follows:

• The mortgage lender
• The seller’s broker
• The buyer’s broker
• The buyer

Parties to a transaction can formally designate a filer through a written agreement signed at or before the closing. This agreement must clearly identify the person who agrees to file the form and must be signed by them to be valid.

Identifying Reportable Real Estate Transactions

A Form 1099-S is required for most sales or exchanges of real estate, which includes land, permanent structures like homes, condominium units, and stock in a cooperative housing corporation. The reporting requirement applies regardless of whether the property is a primary residence or investment property. The trigger for the form is the transfer of ownership in exchange for money, services, or other property.

An exception is the sale of a principal residence, provided certain conditions are met. If the seller certifies in writing that the gain from the sale is excludable from their gross income, the transaction may be exempt from reporting. This certification applies if the sale results in a gain of $250,000 or less for a single filer, or $500,000 or less for those married filing jointly, and the seller meets ownership and use tests.

Other transactions are also exempt from 1099-S reporting, including:

• Gifts and bequests
• Financing or refinancing that does not involve the actual sale or exchange of the property
• Any transaction where the total consideration is less than $600

Information Required to Complete Form 1099-S

Before filling out Form 1099-S, the filer must gather several pieces of information. This includes the filer’s own name, address, and Taxpayer Identification Number (TIN). Similarly, the transferor’s (seller’s) full name, address, and TIN must be collected.

The filer will also need specific details about the transaction itself, including the closing date and a description of the property being transferred. The property description can be its address or a legal description.

A required piece of information is the “gross proceeds” from the sale. Gross proceeds are defined as the total cash received by the seller, including any notes or mortgages paid off at closing. This amount is reported before subtracting any of the seller’s expenses, such as commissions, closing costs, or legal fees.

A Box-by-Box Guide to Filling Out the Form

The filer’s and transferor’s identification details are entered on the left side of the form, while the main transaction details are reported in the numbered boxes on the right.

Box 1, “Date of Closing,” is where the filer enters the date the transaction was finalized. In Box 2, “Gross Proceeds,” the filer reports the total amount the seller received for the property, without any reduction for selling expenses.

Box 3 requires the “Address or legal description” of the property that was sold. If the transferor received or will receive property or services as part of the consideration for the transaction, the filer must check the box in Box 4. Box 6 is used to report the “Buyer’s part of real estate tax,” which is the amount of any real estate tax paid in advance by the seller that is allocable to the buyer.

Filing Procedures and Deadlines

The filer is responsible for sending Copy B of the form to the transferor (the seller) by January 31 of the year following the transaction. This deadline ensures the seller has the necessary information to prepare their own income tax return.

The filer must also submit Copy A of the form to the IRS. The deadline for this submission depends on the filing method. If filing by paper, the deadline is February 28 of the year after the sale. For those filing electronically, the deadline is extended to March 31.

The IRS requires electronic filing through its Filing Information Returns Electronically (FIRE) system for any filer who is required to file 10 or more information returns of any type in a calendar year. This threshold aggregates all types of information returns, such as Forms 1099 and W-2, not just Form 1099-S. Failure to meet these deadlines can result in penalties.