Avoid The Taxman–Don’t File 1099-S If You Don’t Have To

Nobody likes the enormous stack of paperwork that goes along with a real estate transaction. Wouldn’t it be great if you could avoid filling out a document and save money on top if it? Well in some cases you can. Part of the HUD 1 closing process is IRS form 1099-S, but not every sale needs to be reported. According to the IRS there are five kinds of real estate transactions that don’t require 1099-S forms to be filed.

  1. A de minimis transfer – In other words, if you sell the house for basically nothing. In this case, the IRS defines “nothing” as $600. If the total value of all property, services and money received by the seller and documented on the HUD settlement statement form is less than $600, the sale doesn’t have to be reported.
  2. Satisfying a secured debt – If you are transferring the property to the lender to satisfy the mortgage obligation then it does not have to be reported. This would include foreclosure, abandonment or a deed in lieu of foreclosure.
  3. It’s not a sale – If the home is being given as a gift or the financing is not related to the acquisition of real estate then it doesn’t have to be reported to the IRS.
  4. Corporate transfers – If the seller is a corporation, government or volume transfer or, then no 1099-S is not necessary. A volume transfer or is someone like a builder or developer that treats the property as inventory rather than as an asset.
  5. Homeowners – This is the most common one. The 1099-S is designed to tax real estate investors, not average homeowners moving to a new residence. In a nutshell if you lived in the house, didn’t sell another house recently, and the total gain reported on the HUD 1 closing form is $250,000 or less then you don’t need to file a 1099-S. The real rules are more complicated than that but that gives you the gist of it.

You still have to file your HUD statement but if you can avoid the 1099-S this means not only less paperwork but less money out of pocket. The main reason not to file the 1099-S is the seller won’t be taxed on the sale.

DISCLAIMER: We aren’t real estate attorneys. We aren’t tax accountants. We are software developers with access to the instructions for form 1099-S. Consult with a professional before making any decisions about your home or taxes.

If you do need to file a 1099-S, Easysoft’s HUD settlement statement software makes it easy to file the form manually or electronically. Contact Easysoft for more information on the 1099-S module or to ask us about any of our law practice management software products.

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