Who Is Exempt From 1099-S Reporting to the IRS?

When real estate is sold, the IRS typically requires a Form 1099-S to report the transaction for tax purposes. However, certain types of transfers are exempt, eliminating the need for this reporting. Understanding these exemptions helps ensure compliance while avoiding unnecessary paperwork.

Corporate or Partnership Transfers

A Form 1099-S is not required when real estate is transferred to a corporation or partnership. These entities report gains and losses through their tax filings, making additional reporting unnecessary.

For example, if a business contributes property to a partnership in exchange for an ownership interest, the transaction is recorded on the partnership’s tax return. Similarly, when a corporation acquires real estate as a capital contribution from a shareholder, the transfer is generally non-taxable under Section 351 of the Internal Revenue Code, provided the contributing shareholders maintain at least 80% control after the transfer. Since no immediate gain or loss is recognized, a 1099-S is not required.

When a partnership distributes real estate to a partner, the transaction is also exempt. Under Section 731, property distributions from a partnership to a partner are typically non-taxable unless cash or marketable securities exceed the partner’s basis in the partnership. Because these transactions are accounted for within the partnership’s tax filings, separate reporting is unnecessary.

Certain Government Acquisitions

Real estate acquisitions by government entities are exempt from Form 1099-S reporting. This applies to federal, state, and local government bodies, as well as certain instrumentalities acting on their behalf. Since these entities are not subject to federal income tax, reporting the sale serves no purpose.

One common scenario is eminent domain, where a government authority seizes private property for public use, typically providing just compensation to the owner. These transactions often qualify for tax deferral under Section 1033, allowing sellers to reinvest proceeds in similar property within a specified timeframe without immediate tax consequences.

The exemption also applies to voluntary sales to government entities, such as when a city purchases land for a new school or public park. The same principle extends to quasi-governmental organizations, such as public housing authorities, when acquiring property for federally funded development projects.

Tax-Exempt Entities

Organizations with tax-exempt status under the Internal Revenue Code, primarily those recognized under Section 501(c), are not subject to Form 1099-S reporting when buying or selling real estate. This includes charities, religious institutions, educational organizations, and nonprofit healthcare providers. Since these entities do not pay federal income tax on revenue related to their exempt purpose, reporting real estate transactions is unnecessary.

For example, if a 501(c)(3) nonprofit acquires property for its charitable mission—such as a university purchasing land for a new campus or a hospital expanding its facilities—the transaction does not require a 1099-S. The same applies when these organizations sell real estate, provided the proceeds support their exempt activities.

Religious institutions and educational organizations sometimes hold real estate in separate legal entities, such as title-holding corporations under Section 501(c)(2), which exist solely to manage property on behalf of the main organization. These entities are also exempt from 1099-S reporting. Similarly, certain pension trusts under Section 401(a), which manage retirement assets for employees of tax-exempt organizations, can buy and sell real estate without triggering reporting obligations, as long as the transactions remain within the trust’s exempt purpose.

Gift or Inheritance Transactions

Real estate transfers made as gifts or inheritances do not require Form 1099-S reporting. These transactions fall under gift and estate tax rules rather than capital gains reporting.

For gifts, the original owner may need to file IRS Form 709 if the property’s fair market value exceeds the annual gift tax exclusion, which for 2024 is $18,000 per recipient. However, this obligation falls on the donor, not the recipient, and does not involve a 1099-S. Most gifts do not trigger immediate tax liability because they count against the donor’s lifetime estate and gift tax exemption, which is $13.61 million in 2024.

Inherited property benefits from a step-up in basis, meaning the recipient’s tax basis is adjusted to the property’s fair market value at the time of the original owner’s death. This reduces potential capital gains if the property is later sold. Since the transfer itself is not considered a taxable sale, no 1099-S is required.

Minimal Proceeds Transactions

Real estate sales are exempt from Form 1099-S reporting when total proceeds are less than $600. The IRS provides this exemption to reduce administrative burdens for transactions generating minimal taxable income.

For example, if a landowner sells a small parcel of vacant land for $500, the transaction does not require a 1099-S. Similarly, if a homeowner sells a fractional interest in a property—such as a 5% stake in a jointly owned vacation home—for a nominal amount, the reporting requirement does not apply. However, sellers should avoid structuring transactions to artificially reduce proceeds, as the IRS may scrutinize sales designed to evade reporting.

Family Transfers Without Monetary Exchange

Real estate transfers between family members without monetary consideration are exempt from Form 1099-S reporting. These transactions often occur as part of estate planning, divorce settlements, or financial assistance within a family.

For example, when parents transfer ownership of a home to their children without receiving payment, the IRS treats it as a gift rather than a sale, meaning it falls under gift tax regulations rather than capital gains reporting. Similarly, when spouses transfer property to each other—whether due to marriage, divorce, or estate planning—the transaction is exempt. Transfers between former spouses as part of a divorce settlement are specifically addressed under Section 1041, which states that no gain or loss is recognized on such exchanges.