Sale of IRA held real estate.

[RETIREDGRANDDAD]

In 2005 I bought some vacant land using money from my traditional IRA for about $26,000.   We never used the land for any purpose.  We thought we would build there one day but never did.   Last year I had to sell it for $75000.   I am confused about how to report the sale.  I got a 1099-S showing $75,000 from the Abstract Company.   Transferors Name block shows the IRA management company and than "FOR THE BENEFIT OF" and my name and address.  The 9 digit filer TIN is shown.  I don't know if the TIN is for the abstract company or the company who managed my IRA.   Under Transferor's TIN is my SSN.   My proceeds were only $65,000 which I immediately rolled over into another traditional IRA.   All the fees and expenses of the sale came out of the IRA.  I assume since this was a roll over there are no capital gains?   So I do not file a Schedule D Capital Gains and Losses ?   I assume I hold onto the 1009-S for my records, but do not attach it to my tax return (1040)?  So is there anywhere in my tax return where I report this sale ?    If not it seems odd I do not need to report this sale or rollover somewhere, but I am new to all this.   I am worried that since the IRS has that 1099-S they audit me.  Very confused.  BTW I am 74 yrs old.   Thanks for your help.  

[AmyC · Accepted solution]

I will answer your questions with a breakdown. The good, the bad and what you need to do for reporting on your return. The good:

• Thankfully, your form say For Benefit Of and is correct.
• You would not normally claim the sale since it was inside your IRA with no taxable gain to you.
• The company is required to send the 1099-S and they did.

The bad:

Since the 1099-S has your social security number on it, the IRS will notice. You can wait for them to send a letter or be proactive and clam the sale.

Reporting:

The sale:  I suggest you enter the 1099-S on sch D as sale of land under investments. Enter the $75,000 as proceeds and $75,000 as basis since it is NOT taxable to you. See Where do I enter investment sales?

The rollover: 

• Reported on 1040, line 4a - I am assuming the fees to sell the land and the land came out of the IRA
• Line 4b is zero and is a rollover.
• Enter this in the IRA section. See Where do I enter an IRA rollover?

Caution: The RMD- be sure you took the full RMD for all IRA accounts including the new value.

[RETIREDGRANDDAD]

Hi Again,

I am trying to wrap up my tax return but still stuck.  Confused.

For example, I was confused when you suggested that I "Enter the $75,000 as proceeds and $75,000 as basis since it is NOT taxable to you."   I thought the basis had to be what I paid for the property back in 2005 which was about $25K?  Won't the IRS challenge me on that?

Yes on Form 1040 line 4a the total proceeds shown are about $65K and line 4b is shown as zero and is non-taxable and the roll over block is checked off.  And yes all fees, commission taxes etc were all paid out of the IRA. No outside money was used.  

It probably doesn't matter but on the 1099S, its shows my SSN,  name and after my name it shows "IRA" . ALso shown in the Transferors box is the custodian's name as well as their Filers TIN.     

Thanks for your help on this.   TAke care, frank 

[DaveF1006]

Yes, @AmyC is correct when she advised you to enter $75,000 as a basis and for the proceeds. The sale of property held inside an IRA is not a taxable event, and you do not have a capital gain. Technically, the IRA owns the property and not you.

However, because you received a 1099-S with your SSN, you must handle the paperwork correctly to prevent the IRS  from flagging this as "unreported income." while making sure you aren't taxed for the capital gain.

By making the basis equal to the proceeds, you show a $0 gain. This "matches" the 1099-S in the IRS system without flagging this as taxable income. 

[RETIREDGRANDDAD]

Hi Dave,

Thank you for the quick reply.   

Am I correct when I input the sale of the Self Directed IRA into the tax program it should be do  under "sale of collectibles and other capital assets",  "property owned for non-business (personal use) or investment purposes" ?  Is that the right place?  I have already input the 1099R that I received from the SDIRA custodian Equity Trust Company which was about $65k.  The IRA/SEP box is checked on this 1099R from Equity Trust.  

Lastly, should I also attach a copy of the 1099S with my return ?

Thanks again, frank 

[AmeliesUncle]

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@RETIREDGRANDDAD wrote:

Am I correct when I input the sale of the Self Directed IRA into the tax program 

Lastly, should I also attach a copy of the 1099S with my return ?

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If your IRA sold something, that goes nowhere on your personal tax return.

If you are reporting a fake sale (YOU did not sell anything, the IRA did) with $0 gain/loss because you received a 1099-S and want to avoid an IRS notice, yes, that is where you report it.  If you don't want to report the fake sale, just be prepared to respond to an IRS notice when they ask about the 1099-S.  Either way, there is no need to attach the 1099-S to the tax return.

[RETIREDGRANDDAD]

Thank you for your speedy reply.   How about this:

I was wondering if it would simplify things if I were to  attach the 1009S to my return with an explanation that the SDIRA real estate sale was entirely held inside my SDIRA account and that all expenses, fees, commission, taxes all came from within the IRA.   Therefore there are no taxable capital gains and so  Schedule D and Form 8949 are not required.  Also I do not report the sale under the "collectible and capital assets, personal use, non-business, investment section" of the program and the question of basis is removed.   In this way I preemptively explain to the IRS why the capital gains from the sale are non-taxable and there would be no red flags from the IRS.  Do you think this is a good idea and will make things simpler for me and the IRS?   What do you think ?

Thanks frank 

[RETIREDGRANDDAD]

not 1009S, I meant 1099S.   Sorry.

[AmeliesUncle]

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@RETIREDGRANDDAD wrote:

I was wondering if it would simplify things if I were to  attach the 1009S to my return with an explanation

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The IRS will not look at anything that you attach.