Sellers
of real property will have certain information regarding the sale reported to
the Internal Revenue Service.
This
required reporting is a consequence of the Tax Reform Act of 1986; it is
intended to encourage taxpayer compliance and aid in audit and enforcement
efforts by the I.R.S.
To help
you better understand this subject, the Land Title Association has answered
some of the questions most commonly asked about Required Reporting to the
I.R.S.
Who is
required to report to the I.R.S.?
Sellers
of real property, under guidelines established by the I.R.S., are required to
have their gross proceeds from the sale reported on a Form 1099S. When a settlement
agent is used, the I.R.S. makes this agent responsible for the delivery of the
information on the Form 1099S.
The
settlement agent generally will be the escrow agent or title company; however,
it may be an attorney, real estate broker or other person providing settlement
services.
What is
an I.R.S. Form 1099S, and what will be reported?
The
Form 1099S is the reporting form adopted by the I.R.S. for submitting the
information required by law.
The
information will be transferred onto magnetic media by the settlement agent who
will store the information and make the required report to the I.R.S. The
settlement agent is also responsible for keeping a master copy of all
transactions reported.
In
general, information required by the I.R.S. falls into the following
categories:
1.
The
name, address and taxpayer ID number (social security or tax identification
number) of the seller(s)
2.
A
general description of the property (in most cases an address)
3.
The
closing date of the transaction
4.
The
gross proceeds of the transaction (even though gross proceeds do not correspond
to taxable income)
5.
Any
property involved as part of the transaction other than cash or cash equivalent
6.
The
name, address and taxpayer identification number of the settlement agent.
7.
Real
estate tax paid in advance that is allocable to the buyer.
On what
type of transactions is a Form 1099S required?
Currently,
typical homeowner transactions covered include sales and exchanges of 1-4
family residential properties such as houses, townhouses, and condominiums.
Also reportable are sales or exchanges of improved or unimproved land,
commercial or industrial buildings, condominiums, stock in a cooperative
housing corporation and mobile homes (manufactured homes) affixed to real
property.
Specifically
excluded from reporting are foreclosures and abandonment of real property and
financing or refinancing of properties.
What
happens if the seller(s) refuses to provide the taxpayer identification number
for the Form 1099S?
The
settlement agent is required to request the transferor’s taxpayer
identification number(s) (TIN(s)) before the time of closing. You may request a
TIN on Form W-9 or use an alternative written request. The IRS has included
sample wording of an alternative written request in the instructions for
preparation of Form 1099S.
Should
the seller fail to provide the identification number and certify its
correctness, the settlement agent may choose to:
1.
Delay
the closing of the transactions until the information is furnished, or
2.
Complete
the transaction and report to the I.R.S. that an attempt was made to obtain the
information from the seller.
How is
the sale reported when there is more than one seller involved or when multiple
sellers do not own equal interests in the property?
Multiple
sellers may allocate the gross proceeds among themselves for purposes of
reporting. If there is no allocation, an incomplete allocation or conflicting
allocations, then the entire gross proceeds will be reported for each seller.
Where
can I go for further information on taxation of real property?
The
I.R.S. provides free publications that explain the tax aspects of real estate
transactions. You may wish to order:
·
Publication
#523 “Tax Information on Selling Your Home”
·
Publication
#530 “Tax Information for Home Owners”
·
Publication
#544 “Sales and Other Dispositions of Assets”
·
Publication
#551 “Basis of Assets”
To
place your order, phone toll-free (800) 829-3676.