Which Form Reports a Real Estate Transaction to the IRS?

The Internal Revenue Service (IRS) requires the reporting of real estate sales through Form 1099-S, Proceeds From Real Estate Transactions. This form is the primary mechanism for the IRS to track the sale or exchange of real estate. Its purpose is to report the total amount of money the seller received, known as gross proceeds, from the transaction. The information on this form helps the IRS verify that taxpayers are accurately reporting capital gains from property sales.

Responsibility for Filing Form 1099-S

The obligation to file Form 1099-S with the IRS does not typically fall on the seller of the property. Instead, the IRS has established a hierarchy to determine the “reporting person.” In most real estate transactions, the person responsible for closing the deal, such as a settlement agent or closing attorney, is required to file the form.

If no settlement agent is involved, the responsibility shifts. The next party in line is the mortgage lender, followed by the seller’s real estate broker. In the less common scenario where none of these parties are present, the duty falls to the buyer’s broker or, as a last resort, the buyer themselves.

Information Reported on Form 1099-S

Form 1099-S requires several pieces of information to be submitted to the IRS. The form must include the name, address, and taxpayer identification number (TIN) of the filer. It also requires the same personal information for the seller.

The form also captures specific details about the transaction itself. This includes the closing date, which establishes the tax year of the sale, and a description of the property, which is usually the property’s address. The most significant figure on the form is the “gross proceeds,” reported in Box 2. Gross proceeds represent the total consideration received by the seller without any reduction for selling expenses, such as commissions, closing fees, or legal costs. This amount includes cash, the principal of any notes the seller accepts, and any of the seller’s existing mortgages that the buyer assumes.

Exceptions to the Reporting Requirement

The most common exception applies to the sale of a principal residence. A reporting person is not required to file the form if the seller provides a written certification that the property is their main home and the gross proceeds are $250,000 or less ($500,000 for married couples filing a joint return). This certification must also state that the seller is excluding the full amount of the gain from their taxable income under Section 121 of the Internal Revenue Code.

Other exemptions include:

• Transactions where the seller is a corporation or a governmental unit.
• Transactions that are not true sales or exchanges, such as gifts or bequests.
• The financing or refinancing of a property where no sale occurs.
• De minimis transactions where the total consideration is less than $600.

Using Form 1099-S on Your Tax Return

Upon receiving a copy of Form 1099-S, the seller must use the information to report the real estate sale on their personal income tax return. The gross proceeds figure from Box 2 of the 1099-S serves as the starting point for calculating the capital gain or loss from the sale.

The seller will first report the sale on Form 8949, Sales and Other Dispositions of Capital Assets. On this form, the seller lists the gross proceeds from the 1099-S, the original cost basis of the property, and any selling expenses not accounted for in the gross proceeds figure. The net gain or loss calculated on Form 8949 is then transferred to Schedule D (Capital Gains and Losses), which is filed with the Form 1040 income tax return.