What Is a 1099ls for a Real Estate Transaction?
Understand the role of Form 1099-S in a property sale and how the reported figures are used to determine your final capital gain or loss for tax purposes.
A “1099ls” in a real estate context refers to IRS Form 1099-S, “Proceeds From Real Estate Transactions.” This form is used to report the gross proceeds from the sale or exchange of real estate to the IRS and the seller. It covers transactions involving land, permanent structures like residential or commercial buildings, and stock in a cooperative housing corporation.
Who Files and Receives Form 1099-S
The responsibility for filing Form 1099-S falls to the person or entity responsible for closing the transaction, which is the settlement agent listed on any closing statements. The seller of the property, referred to as the “transferor,” receives a copy of the form, while the original is filed with the IRS. In most cases, a title company or an attorney who handles the closing will prepare and file the form.
If no settlement agent is involved, the IRS specifies a hierarchy to determine the filer: the mortgage lender, the transferor’s broker, the transferee’s broker, and finally, the buyer. The filer must send a copy to the seller by mid-February of the year following the sale. The form must be filed with the IRS by February 28 for paper filing or March 31 for electronic filing.
Understanding the Information on Form 1099-S
Form 1099-S contains specific details about the transaction reported to the IRS. It identifies the filer, the seller (transferor), the closing date, and the property’s address or legal description. The most significant figure is in Box 2, “Gross Proceeds.”
Gross proceeds represent the total amount received for the property before any subtractions. This includes cash paid to the seller, the principal amount of any notes the buyer takes on, and any of the seller’s mortgages that were paid off at settlement. This figure is the starting point from which the taxable gain is calculated, not the gain itself.
Other boxes provide additional context. One box is checked if the seller received property or services instead of cash. Another indicates if the seller is a foreign person, which can trigger different tax withholding rules. The form may also show the amount of real estate tax paid in advance by the seller that is allocable to the buyer.
Common Exceptions to the Filing Requirement
Not every real estate sale requires filing a Form 1099-S. The most common exception is for the sale of a principal residence if the gain is fully excludable from income. For a single individual, up to $250,000 of gain can be excluded, while a married couple filing a joint return can exclude up to $500,000.
To qualify for this exclusion, the seller must meet both an ownership and a use test. During the five-year period ending on the date of the sale, the seller must have owned the home for at least two years and lived in it as their main home for at least two years. If these conditions are met, the closing agent does not have to file a 1099-S if they receive a written certification from the seller affirming the exclusion applies.
Other transactions exempt from 1099-S filing include:
- Transactions where the total consideration is less than $600
- Gifts or bequests
- Foreclosures
- Transfers where the seller is a corporation, a government unit, or a qualifying high-volume seller
Reporting the Sale on Your Tax Return
Receiving a Form 1099-S means you must account for the transaction on your tax return, even if no tax is due. You must calculate the capital gain or loss by taking the “Gross Proceeds” from Box 2 and subtracting the property’s adjusted basis. The basis is the original purchase price plus the cost of any significant capital improvements, less any depreciation taken.
This calculation is reported on Form 8949, “Sales and Other Dispositions of Capital Assets.” On this form, you will enter the proceeds from the 1099-S, the property’s cost basis, and the dates of acquisition and sale. The information from Form 8949 is then summarized on Schedule D, “Capital Gains and Losses,” which is filed with your Form 1040.
If you sold your main home and qualify to exclude the gain, you must still report the sale on Form 8949 if you received a 1099-S. You would report the full gain and then show the amount of your exclusion as an adjustment, resulting in a lower taxable gain. For the sale of an investment property, the entire calculated gain is taxable and reported through the same process on Form 8949 and Schedule D.