What Is Form 1099-S for Real Estate Transactions?

When selling or exchanging real estate, you may encounter IRS Form 1099-S, Proceeds From Real Estate Transactions. This informational document’s primary function is to report the total amount of money received by the seller, known as gross proceeds, to both the seller and the IRS. This ensures that the government has a record of the transaction.

The form reports the sale of various types of real estate, including land, permanent structures like residential or commercial buildings, and stock in a cooperative housing corporation. It is a standard part of closing on a property sale. The information on this form serves as a starting point for the seller to accurately calculate and report any potential capital gain or loss on their income tax return.

Who is Responsible for Filing Form 1099-S

The obligation to file Form 1099-S with the IRS and provide a copy to the seller falls to a specific person involved in the transaction, determined by a clear hierarchy. The person responsible for closing the deal, typically a settlement agent or an attorney, is first in line to file the form. Their role in finalizing the sale and handling the funds makes them the primary party for this reporting duty.

If a settlement agent is not involved, the responsibility shifts down the line. The next party in the hierarchy is the mortgage lender, followed by the seller’s real estate broker. Should none of the previous parties be applicable, the duty then falls to the buyer’s broker. In the rare instance that no other party fits these roles, the buyer (referred to as the transferee) is ultimately responsible for filing the form.

The filer must adhere to specific deadlines. A copy of Form 1099-S must be furnished to the seller by February 15th of the year following the sale. The deadline for filing the form with the IRS depends on the method; paper forms are generally due by February 28th, while electronically filed forms have a later deadline of March 31st.

Understanding the Information on Form 1099-S

When you receive a Form 1099-S, it contains several key pieces of information that document the real estate transaction. The form will clearly identify the filer, which is the person or company responsible for reporting the sale, along with their contact information and Taxpayer Identification Number (TIN). It also includes the seller’s (transferor’s) name, address, and TIN, ensuring the IRS can match the reported proceeds to the correct individual’s tax return.

Several boxes on the form provide specific details about the sale. Box 1 shows the date of closing, which establishes the tax year in which the sale occurred. Box 4 contains a description of the property, which can be its address or legal description.

The most significant figure on the form is in Box 2, “Gross Proceeds.” This number represents the total amount the seller received for the property before any expenses are subtracted. It includes cash, the value of any property or services received as part of the deal, and the outstanding amount of any mortgage that the buyer assumed. It is important to understand that this is not the taxable profit; it is the starting figure used to calculate the actual gain or loss.

Common Exemptions from the Reporting Requirement

Not every real estate sale requires the filing of a Form 1099-S. The most common situation where an exemption applies is the sale of a principal residence. If the seller meets certain criteria, the person responsible for closing the transaction is not required to file the form. This exemption is directly tied to the capital gain exclusion rules, which allow individuals to exclude up to $250,000 of gain ($500,000 for married couples filing jointly) from their income.

To qualify for this reporting exemption, the seller must provide a written certification to the filer. This certification is a formal statement affirming that they meet the requirements for the exclusion. The seller must attest that they owned and used the property as their main home for at least two of the five years leading up to the sale, that they have not sold another principal residence within the last two years, and that the full gain from the sale is excludable from their gross income.

Other transactions are also exempt from 1099-S reporting. For instance, sales where the seller is a corporation or a government entity do not need to be reported. Transactions that are not considered true sales, such as refinancing a mortgage or a gift of property where no consideration is exchanged, are also excluded.

How to Report the Sale on Your Tax Return

Upon receiving Form 1099-S, the seller must use the information to report the property sale on their federal income tax return. The “Gross Proceeds” amount listed in Box 2 of the 1099-S is the initial figure you will use. This number is transferred to IRS Form 8949, Sales and Other Dispositions of Capital Assets, where you will detail the specifics of the transaction.

On Form 8949, you will report the gross proceeds from the 1099-S as the sales price. To determine your actual gain or loss, you must also enter the property’s cost basis. The basis is generally what you originally paid for the property, plus the cost of any significant capital improvements made during your ownership. You will also subtract any selling expenses, such as real estate commissions, legal fees, and advertising costs, from the sales price.

After calculating the gain or loss on Form 8949, the totals are carried over to Schedule D, Capital Gains and Losses. This schedule consolidates all capital transactions for the year and calculates the final net capital gain or loss that will be reported on your Form 1040. This process ensures that you are taxed only on the net profit from the sale, not the gross proceeds reported on Form 1099-S.