IRS is inquiring about a 1099-S that they received but is not on client's tax return. $578,000 was the sale amount. This is the client's personal residence that he sold. He took the 121 exclusion of $500,000 after calculating improvements and expenses of sale. There was no reportable gain. I didn't report it. Am I incorrect on this? I would think that IRS doesn't really know that this is a personal residence thats being reported on the 1099-S.
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If a 1099-S is filed the IRS does not know that this is a personal residence and can/should be reported and then the gain subtracted w/ the notation of Section 121 gain on the schedule D. If a loss report with the notation personal loss disallowed. You can follow up with a letter of explanation and should be good. -
I was pretty sure that you always have to report it if you receive a 1099-S, so I checked my most recently downloaded version of Pub. 523, from 2009, and it said you're right, no reporting needed.
But since it's two years old, I decided to download and check the current version, and guess what, they changed the rules. Just for the heck of it, I checked the 2010 version, and that's the year they changed. I'll admit the current rule is simpler, always report the 1099-S.
To compensate, closing attorneys aren't required to issue the 1099-S if the seller signs an affidavit asserting they aren't making a profit (or possibly if they're not making more than their exclusion, I'm not sure). I don't know if this is new or connected to the change in the IRS policy.Comment
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If there's a 1099-S, the IRS has no reason to know it qualifies for the exemption.
The last time I sold a qualified home, during closing the title company had a form you'd sign if it was a personal residence, and then a 1099-s wasn't issued. But that was quite a few years ago.Comment
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Prior rollover?
Remember that under the old rules regarding the sale of a residence, you reduced the basis by the amount of the gain when you sold a residence and purchased a new residence.
Be sure that you are calculating the basis correctly when calculating the gain.
I think the IRS has on their records the information concerning the old rules and the gain that was deferred.
As others have commented, I always show the sale on Schedule D, zeroed out, just to avoid the CP2000.Jiggers, EAComment
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Additional Information
I did not have the 1099-S at the time of the preparation of the return. If I did, I probably would have done things differently. This was his first house so there is no prior exclusion.Last edited by zeros; 08-15-2012, 09:04 AM.Comment
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1099-S or 1099-B
All the same,,,IRS has no idea of the cost basis on a 1099-B, all profit as far as they are concerned, I have always reported any 1099 received.Confucius say:
He who sits on tack is better off.Comment
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The S is almost always buried in the stack of docs received at closing. At least it's always been there when I've sold a property.Comment
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Partially correct
Without checking the rules, I thought you did not have to report the sale if it qualified for the 121 exclusion but alas, the IRS states:
Do not report the 2011 sale of your main home on your tax return unless:
• You have a gain and do not qualify to exclude all of it,
• You have a gain and choose not to exclude it, Or
• You received Form 1099-S.
There it is in the last sentence.Circular 230 Disclosure:
Don't even think about using the information in this message!Comment
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