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Bluelex18
Level 2

1099- S Question

I sold a house in Oct 2020 in which was my primary residence and I lived in for last 4 years straight and profited less than 250k, so I thought I would be exempt from Capital Gain Taxes.  However, during the closing with the attorney me and my wife signed a 1099-S Form and were given copies even though I meet the criteria to be exempt from the Capital Gains on the sale of the home.   I called them last week and they stated that they are required to file the 1099-S by law and whether or not I have to pay Capital Gains isn't their business.   I understand that but was that necessary and because I got a copy and they said they would upload it to the IRS I went ahead and disclosed the Income when I filed my taxes via TurboTax but was not on the hook for the Taxes.  

 

Did I do the correct thing and does this look strange from the IRS's point of view??

 

Also do some Closing Attorney send it and then some don't???

 

 

5 Replies
RayW7
Expert Alumni

1099- S Question

Yes, you will need to include your Form 1099-S.  Since this form was issued to you, the IRS will be looking to match it to your return.

 

TurboTax will walk you through reporting the sale of your home when you select "Sale of Home" under "Less Common Income".

 

It's unlikely you will be taxed on the capital gain.  Your are correct in that some closing firms send a 1099-S and some do not.  I expect going forward it will become the standard procedure. 

 

Do you have to pay taxes on the profit you made selling your home?

It depends on how long you owned and lived in the home before the sale and how much profit you made.

  • If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free.
  • If you are married and file a joint return, the tax-free amount doubles to $500,000.

The law lets you "exclude" this profit from your taxable income. (If you sold for a loss, though, you can't take a deduction for that loss.)

  • You can use this exclusion every time you sell a primary residence, as long as you owned and lived in it for two of the five years leading up to the sale, and haven't claimed the exclusion on another home in the last two years.
  • If your profit exceeds the $250,000 or $500,000 limit, the excess is reported as a capital gain on Schedule D.

How do I qualify for this tax break?

There are three tests you must meet in order to treat the gain from the sale of your main home as tax-free:

  • Ownership: You must have owned the home for at least two years (730 days or 24 full months) during the five years prior to the date of your sale. It doesn't have to be continuous, nor does it have to be the two years immediately preceding the sale. If you lived in a house for a decade as your primary residence, then rented it out for two years prior to the sale, for example, you would still qualify under this test.
  • Use: You must have used the home you are selling as your principal residence for at least two of the five years prior to the date of sale.
  • Timing: You have not excluded the gain on the sale of another home within two years prior to this sale.

If you're married and want to use the $500,000 exclusion:

  • You must file a joint return.
  • At least one spouse must meet the ownership requirement (owned the home for at least two years during the five years prior to the sale date).
  • Both you and your spouse must have lived in the house for two of the five years leading up to the sale.

 

 

Bluelex18
Level 2

1099- S Question

So we bought the house on October 23rd 2015 and lived there till September 25th 2020. It wasn’t 5 years but we lived there as our primary for over 4 years straight.. and we paid 224k and sold for 273,500 so profit was 49,000 and it was our primary residence and we didn’t claim this exclusion since 2014.  So we would qualify correct??

Bluelex18
Level 2

1099- S Question

Also when I sold a previous home in 2014 a 1099-S was not filed and since I met the exemption criteria then they didn’t file it...  so wonder why it was okay then but not this time?

pattif12
Expert Alumni

1099- S Question

Yes, you would qualify to exclude the gain in your income since you owned the house and  lived there for two out of the last five years.

 

See more information in this IRS Sale of Your Home.

AmyC
Expert Alumni

1099- S Question

Some attorneys file them for every client regardless of the circumstances, it keeps them off the hook. The IRS has no problem with getting a 1099-S and accepting that you lived there and qualify for the exemption. They know your address every year. They can see the sales price. If it looks fishy, they will let you know. Otherwise, if you sold it for a reasonable amount, it is obvious you lived there, no worries.

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