I received a 1099-s from sale of my LLC interest in a shopping center property, It included in Gross Proceeds the mortgage loan payoff. How do I handle the mortgage?

[john-hein]

I received a 1099-s form for the sale of my LLC interest in a shopping center rental property, It included in Gross Proceeds the mortgage loan payoff as well as the net cash I received. How do I treat the mortgage loan payoff amount when calculating the gain/loss? I actually incurred a loss after all expenses of the sale. I put in $255,000 and received $211,000 in the end but I did have ~$80,000 in accumulated depreciation, so I understand that this is recaptured, so net effect is about a $36,000 adjusted gain. So do I simply subtract the loan payoff amount on my tax form for cash proceeds?

[PatriciaV · Accepted solution]

No, the mortgage payoff is not included in the calculation of gain/loss on the sale. You may deduct mortgage interest that you paid on Schedule E. But the mortgage principal is not part of the sale.

[john-hein]

Thank you PatriciaV - so to be clear, when I fill in the "cash" sale amount on TurboTax, I don't use the 1099s figure anywhere, I simply subtract the mortgage amount paid off from the 1099s amount?  Is this correct?

[PatriciaV]

No, enter the full amount from Form 1099-S as the sales proceeds. You will not enter the mortgage payoff at all on your tax return.

[iisierra]

What about paying closing costs as a seller? I will give a credit to my buyer. Does that mean the gross amount that I will report has the added closing costs as an earning? Also, to confirm I understood correctly, the 1099 S gross earnings already doesnt count money that went to the pay off of the mortgage loan after the sale?  Thanks in advance!

[DaveF1006]

Yes, if you offer a credit to the buyer for the closing cost, this should be subtracted from the sales proceeds. This means the seller will receive less net proceeds from the sale because the amount of the credit is deducted from the total sales price.