IRS Form 1099-S: 11 Things (2021) You Should Know

If you’ve had a real estate sale this past year, don’t leave it until the last minute to send in your IRS Form 1099-S.

This form is important because it ensures that you are reporting all capital gains as required by federal law.

You’ll need to have this done in advance of the deadline, so don’t delay!

In this blog, we’ll discuss the top things you should know about IRS Form 1099-S.

Let’s get started.

1. What is IRS Form 1099-S?

IRS Form 1099-S is a tax document used to ensure that the full amount of capital gains received for a real estate sale are accurately reported to the IRS.

Typically, when real estate is sold, the seller is subject to a capital gains tax.

In order to calculate how much tax you are required to pay, the IRS must know how much you made on the sale.

Thus, the IRS Form 1099-S must generally be filed as part of the closing process in order to report the non-employment income you made on the sale to the IRS.

This is an official IRS (Internal Revenue Service) tax form that requires a lot of personal information, including your full name and address.

While you can have this form outsourced, you’ll want to make sure you trust whoever fills it out for you.

2. Who must file IRS Form 1099-S?

There are a number of factors that impact who must file a 1099-S Form.

These include:

bulletThe sale price

bulletThe closing agent

bulletThe seller

bulletThe type of property being bought and sold

Here are some scenarios under which you are not responsible for filing the 1099-S yourself as a seller (note: please be sure to verify any of the below information with your attorney, closing agent and/or accountant):

bulletIf you close a transaction with a title company or attorney (as most people do), then they will usually collect the necessary information and file Form 1099-S on your behalf.

They will also send you a copy, which you can use when you file your income tax return.

bulletIf the seller certifies that the sale price is for $250K or less (and the sale is for their principal residence), then the transaction is not reportable.

You do not need to worry about filing a 1099-S Form.

If you’re married, this price is increased to $500,000.

Please see the screenshot below from the IRS’s Instructions for Form 1099-S (2021).

bulletIf the seller is a corporation (as defined under Regulations section 1.6045-4(d)(2))) or government unit, then the transaction is not reportable and you do not need to worry about filing a 1099-S Form.

Please note that an LLC would have to be treated as a corporation for tax purposes to be considered under this exemption.

bulletIf the seller is an exempt volume transferor, or someone who sold at least 25 properties in the last year, then the transaction is not reportable and you do not need to worry about filing a 1099-S Form.

Please see the screenshot below from the IRS’s Instructions for Form 1099-S (2021).

bulletIf the total money, services, and property received are less than $600, then the transaction is not reportable and you do not need to worry about filing a 1099-S Form.

Please see the screenshot below from the IRS’s Instructions for Form 1099-S (2021).

These are the most common reasons why you do not need to file an IRS Form 1099-S.

You can read up about other exceptions on the IRS website.

With that said, if the transaction does not fall within one of these categories and you’re facilitating the closing yourself, you will likely need to file Form 1099-S.

The IRS designates that “the person responsible for closing the transaction” is required to file Form 1099-S.

Please see the screenshot below from the IRS’s Instructions for Form 1099-S (2021).

This is why title companies and attorneys are able to do it on your behalf.

If you do not want to file it yourself, you are able to designate a person required to file Form 1099-S in a written agreement.

The IRS states, “You can enter into a written agreement at or before closing to designate who must file Form 1099-S for the transaction.

Please see the screenshot below from the IRS’s Instructions for Form 1099-S (2021).

3. When should you file?

If you are required to file the 1099-S yourself, you can choose to submit it via mail or e-file.

If you’re filing by mail, you should do so by February 28, 2022.

You can find the address where you must send the form on the IRS’s General Instructions for Certain Information Returns.

If you’re e-filing, then you should do so by March 31, 2022.

You can file online at the IRS’s Online Filing System.

Please note that you must request the authority to file online before November 1st using Form 4419, Application for Filing Information Returns Electronically (FIRE).

You will also need software that will allow you to submit the document in the proper format.

4. What else do I need to file?

Even if you do not have to file the 1099-S form yourself, you will still need to report any capital gains on your income tax return (Form 1040).

The sale of the following assets must be reported as follows (please note that this is not an exhaustive list):

bulletInvestment Use Property: Form 1040 Schedule D

bulletPrimary Residence: Form 1040 Schedule D and Form 8949

bulletBusiness or Rental Property: Form 1040 Schedule D and Form 4797

bulletLike-Kind Exchanges: Form 8824

5. Why is an IRS Form 1099-S necessary?

The purpose of IRS Form 1099-S is to ensure that sellers are reporting their full amount of capital gains on each year’s tax return.

Capital gains are taxed on the profit you realize from the growth in the value of an investment.

Where real estate is concerned, 1099-S Forms come into play when individuals buy and sell properties.

For example, consider someone buying a property for $100,000 and selling it for $150,000.

This gives them $50,000 of capital gains income.

While the individual is supposed to report this as taxable income at the end of each year, not everyone does.

Requiring the closing agent to file a 1099-S acts as a safeguard and keeps the IRS informed of what’s going on. 

6. How do you complete the IRS Form 1099-S?

To complete a 1099-S Form, you’ll need to provide the following information.

bulletFiler’s name, address, telephone number

bulletFiler’s TIN (tax identification number) or SSN (social security number)

bulletTransferor’s (seller’s) TIN/SSN (the closing agent may request that you fill out form w-9 to get this information)

bulletTransferor’s (seller’s) name and address

bulletAccount number

bulletDate of closing

bulletGross proceeds

bulletAddress or legal description of the transferred property

bulletIndication if transferor (seller) received property or services as part of the consideration

bulletIndication if transferor (seller) is a foreign person, partnership, estate, or trust

bulletBuyer’s part of real estate tax

7. What are the most common uses for an IRS Form 1099-S?

The purpose of Form 1099-S is to ensure that sellers are reporting the full amount of their capital gains on each year’s income tax return.

Thus, the copy of the 1099-S form you receive from your title company will help you as you file your taxes.

Here are the most common uses for the 1099-S.

bulletPersonal use:

This is for individuals who received a 1099-S because of the sale of their primary residence.

The sale of your home will be reported on Form 8949 and Schedule D.

Do not report the sale of your primary residence on your tax return unless your gains exceeded your exclusion amount.

If you received a 1099-S for the sale of a timeshare or vacation home, then the sale is a personal capital asset and is reportable on Form 8949 and Schedule D.

A gain on this type of sale is reportable regardless of the sale amount.

Because it is a personal use property, you also cannot deduct a loss if you incurred a loss on the sale.

The same rules apply if the property was inherited and considered a personal capital asset.

bulletInvestment use:

If you received your 1099-S Form for an investment property (or inherited property that is considered investment property), then the sale is reportable on Schedule D.

bulletBusiness or rental use:

If you received your 1099-S Form for the sale of a business or rental property, this is reportable on Schedule D and on Form 4797.

8. What happens if you fail to file?

Are you just now hearing about IRS Form 1099-S for the first time?

Do you have a sinking feeling in your stomach wondering if you should have been filling it out for the past few years?

What’s going to happen to you if you haven’t filled it out previously?

Is the IRS going to come knocking down your door?

Technically, there are penalties that the IRS can issue for failure to fill out any type of 1099 Form.

These start at $250 per failure if they find out about it.

However, there’s a fairly small chance that you’ll be the one specifically in charge of the 1099-S form.

Typically, the transactions you’ll need to look out for are those where no title company or attorney is involved.

So if this applies to you, then you’ll want to make sure you cross your t’s and dot your i’s to ensure you don’t get hit with penalties.

9. Do you have to pay taxes on the gains reported on the IRS Form 1099-S?

Yes, IRS Form 1099-S is used to report non-employment income to the IRS.

There are over 20 different types of 1099 forms, and 1099-S is just one of those types.

It’s specifically used for reporting capital gains on real estate transactions.

Businesses (like title companies) and any other parties involved in a real estate transaction (where no title company is involved) must issue an IRS Form 1099-S to anyone who receives at least $600 during the year.

They are required by law to do this.

The IRS uses the 1099-S sent by the closing agent to verify that the sale was included in the taxpayer’s return.

10. Do you always get an IRS Form 1099-S when you sell a house?

No, not always.

When you sell your home, you may have signed a form certifying that you will not have a taxable gain on the sale.

If you’ve completed a 1099-S Exemption Certification Form, and you met all six criteria for not having to report the sale on your tax return, then the title company or closing attorney may not send IRS Form 1099-S to you or the IRS.

There are also a couple of other instances where you wouldn’t receive a 1099-S form.

For example, if the sale was for less than $600 (unlikely), or if the transaction was closed without a title company or closing attorney and you agreed to be responsible for reporting the sale.

11. What is the 1099-S Certificate Exemption Form?

The 1099-S Certificate Exemption Form applies to principal residences and outlines transactions that are not 1099-S reportable.

Typically, the IRS requires certification of these six items.

bulletOwned and used as the principal residence for 2+ years of the 5-year period ending on the date of the sale or exchange of the residence

bulletHad no sale or exchange of another principal residence during the 2-year period ending on the date of the sale or exchange of the residence

bulletNo portion of the residence was used for business or rental purposes

bulletThe sale or exchange of the entire residence is for $250,000 or less

If married, the sale or exchange of the entire residence is for $500,000 or less

bulletDuring the 5-year period ending on the date of the sale or exchange of the residence, it was not acquired in a 1031 exchange

bulletIf the basis in the residence is determined by the basis of another person who acquired it in a 1031 exchange, that exchange must have occurred more than 5 years prior to the sale or exchange

Final Thoughts

Are you feeling more prepared for tax season?

Real estate taxes – for both buyers and sellers – can seem complicated until you get the hang of it.

Don’t let IRS Form 1099-S scare you.

It’s just a document that reports to the IRS the profit you made from selling a house as a taxable gain.

However, it allows a significant exclusion or reduction if you meet certain requirements.

As you navigate this process, be sure to consult a real estate tax attorney or accountant if you need help getting everything in order.

Do you have any other questions?

Let us know in the comments.

For more information on buying, selling, or investing in vacant land, check out our other resources below.

We’re here to help throughout the entire land buying and selling process!

Additional Resources

If you are looking to buy affordable land, you can check out our Listings page. one-dollar-buy-landAnd before you buy land, make sure you check out Gokce Land Due Diligence Program. gokce-land-due-diligence-program-banner If you are looking to sell land, visit our page on how to Sell Your Land.

Would you like to receive an email with our latest blog/properties every Thursday?

 

Subscribe Now

 

Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.

2 thoughts on “IRS Form 1099-S: 11 Things (2021) You Should Know”

  1. Escrow agent refuses to correct the number of transferors with allocation changes on the substitute form 1099s when she was informed of mistake after escrow closing which prejudices my tax return by concealing information.

    Reply
    • I’m sorry to hear that, Gene. Thank you for sharing.

      Reply

Leave a Comment