1099-S box 2 amount too high

[Kitty G]

I received a 1099-S from the sale of an inherited house, contract price $450,000.  However, box 2 of the  1099-S shows $450,600, which includes a $600 property tax credit to seller (me).  There is no cap gain or loss since it's inherited & sold quickly (about 6 months after date of death, so using basis equal to sale price).  Should I just report on my tax return the sale price shown in the closing docs?  Or do I report the $450,600 amount as the proceeds, even though that's not the sale price?  I've asked for a corrected 1099-S from closing attorney who issued it, to show sale price in box 2, but haven't heard back yet.  Thanks for any help.

[ThomasM125 · Accepted solution]

You should report the amount listed on the Form 1099-S. The IRS will look for that amount on your tax return and if it differs they may take exception to that. You can add the property tax to the cost of the property to cancel it out. 

[Kitty G]

Thank you - your advice will be my plan "B" if I can't get a corrected 1099-S in time - I forgot to mention when I wrote my original question (senior moment) that the house is in NYS (no other NY income), and I'm in GA 

- I know to do the NY return first in TurboTax.  The NYS form IT-2663 (Non-Resident Estimated Tax) the lawyers filed at closing (I wasn't there, signed everything ahead of time long-distance) - shows the contract price, and also reported closing costs in an amount greater than the $600 tax (which is neither a closing cost nor a "proceed of sale" - it's simply a credit for prepaid property tax).  So I figure even using the wrong $450,600 figure, closing costs will still zero out any gain, and all will be good for both states as well.  

[KrisD15 · Accepted solution]

You would add the 600 listed on the 1099-S for the reimbursement of tax payment as an increase to the basis (add it to the total you enter as the "Adjusted Basis".

IRS Pub 530 states for the Buyer to lower the basis for taxes paid by the Seller, so it only goes to prove the opposite would also be true, Seller would increase the basis for tax paid and reported on the 1099-S.

In other words, since the 1099-S includes 600 for the tax, the 600 is part of the basis. 

“If the seller actually paid for any item for which you are liable and for which you can take a deduction (such as your share of the real estate taxes for the year of sale), you must reduce your basis by that amount unless you are charged for it in the settlement.”