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Funny 1099-s

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    #1

    Funny 1099-s

    Leave it up to me to get something new every new year!
    A client sold a house for $2000,000. The pipe line went too close to their house so the city bought a $35,000 house and land for $200,000. The IRS sent a 1099-S that has just $10,000 on it that said Tract #1798.2

    What would be the basis of this since they did not pay anything at all on the sale? No lawyer fees, no closing cost or upgrade of the house---nothing.

    They said the 10,000 was the deposit. Have you heard of anything like this and what do I use for the basis? So how do I work this one? It is a little confusing and way too late for something hard for my brain to think! Thanks for anything on this matter.
    SueBaby
    Tags: None
    #2
    Confused

    Sue--

    I'm not following this at all.

    Did your client sell the house to the city? Was it a voluntary sale in lieu of eminent domain proceedings? In other words, if your client had not agreed to sell the house to the city, then the city would have condemned it and used eminent domain to take the house, because of the pipeline?

    When did your client buy the house, and what did they pay for the house?

    Was it their principal residence, or was it an investment property? Or something else?

    If it was their principal residence, how long did they own it? Do they qualify for the exclusion?

    Did they sell the entire parcel, or only part of it?

    You wrote that "the IRS sent a 1099-S." But the 1099-S is sent to the IRS by the closing agency, or, if there was no closing agency, by the buyer, which in this case appears to be the city...

    Did the client actually realize some sort of gain?

    You ask "what would be the basis of this since they did not pay anything on the sale." How can they not have a basis in the home? Even if the home was a gift or an inheritance, it still has a basis... You just don't increase the basis by any closing costs, since there were none...

    BMK
    Burton M. Koss
    koss@usakoss.net

    ____________________________________
    The map is not the territory...
    and the instruction book is not the process.

    Comment

      #3
      Originally posted by Koss View Post
      Sue--

      I'm not following this at all.

      Did your client sell the house to the city? Was it a voluntary sale in lieu of eminent domain proceedings? In other words, if your client had not agreed to sell the house to the city, then the city would have condemned it and used eminent domain to take the house, because of the pipeline?

      When did your client buy the house, and what did they pay for the house?

      Was it their principal residence, or was it an investment property? Or something else?

      If it was their principal residence, how long did they own it? Do they qualify for the exclusion?

      Did they sell the entire parcel, or only part of it?

      You wrote that "the IRS sent a 1099-S." But the 1099-S is sent to the IRS by the closing agency, or, if there was no closing agency, by the buyer, which in this case appears to be the city...

      Did the client actually realize some sort of gain?

      You ask "what would be the basis of this since they did not pay anything on the sale." How can they not have a basis in the home? Even if the home was a gift or an inheritance, it still has a basis... You just don't increase the basis by any closing costs, since there were none...

      BMK
      Yes my client sold the house to the city. Yes, voluntary and no it is not condemned; it is an office for them now. The client bought it for 35,000 in '01 and yes it was the principal residence. They owned it till they sold it last July and yes they do qualify for the exclusion. They sold all the parcel of house and land. Yes it was sent to the IRS by the closing agency. I think that is all the answers that I have Koss, so where to go from here?
      SueBaby

      Comment

        #4
        Sale of Principal Residence

        Based on everything you've said, it sounds like the 1099-S is just some sort of clerical error.

        I think the client has a potentially taxable gain on the sale of their principal residence.

        Am I understanding correctly that they bought the house and the land back in 2001 for a total price of only $35K, and then sold it in 2008 for $235,000?

        It sounds like they have a gain of $200K, but it also sounds like it qualifies for the exclusion...

        Maybe there's still something about this that I don't fully understand.

        If I'm getting all the facts straight, I would just ignore the 1099-S because it's obviously wrong. I would simply document the sale of the home for what it is. But if they choose to use the exclusion, then it doesn't have to be reported at all.

        BMK
        Burton M. Koss
        koss@usakoss.net

        ____________________________________
        The map is not the territory...
        and the instruction book is not the process.

        Comment

          #5
          Originally posted by Koss View Post
          Based on everything you've said, it sounds like the 1099-S is just some sort of clerical error.

          I think the client has a potentially taxable gain on the sale of their principal residence.

          Am I understanding correctly that they bought the house and the land back in 2001 for a total price of only $35K, and then sold it in 2008 for $235,000?

          It sounds like they have a gain of $200K, but it also sounds like it qualifies for the exclusion...

          Maybe there's still something about this that I don't fully understand.

          If I'm getting all the facts straight, I would just ignore the 1099-S because it's obviously wrong. I would simply document the sale of the home for what it is. But if they choose to use the exclusion, then it doesn't have to be reported at all.

          BMK
          That's what I thought about the exclusion......to not report it. Thanks for putting this puzzle together and for me to see it clearly now. Have a Happy Valentine's Day to all!!!
          SueBaby

          Comment

            #6
            1099-s

            If your client received a Form 1099-S (rightly or wrongly), the IRS will be looking for it on the return. In those cases, I show the sale matching the 1099-S on Schedule D, with the excluded gain per Section 121 backed out. Lets the IRS match everything and avoids the future CP 2000.
            Last edited by belle; 05-06-2019, 02:55 PM.
            Belle

            Comment

              #7
              Originally posted by belle View Post
              If your client received a Form 1099-S (rightly or wrongly), the IRS will be looking for it on the return. In those cases, I show the sale matching the 1099-S on Schedule D, with the excluded gain per Section 121 backed out. Let's the IRS match everything and avoids the future CP 2000.
              I had to match what the IRS had on that 1099-S because that was what was sent. Thanks for all the advice on this matter for me.

              When I get very tired I get second options because I start to doubt myself. thanks again
              SueBaby

              Comment

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