1099-S

[payer opera 1602]

A life estate deed was established by the mother of the home assigning ownership to the 3 children. The mother had to be placed in a private pay care facility and the decision was made to sale the home. Even thou the life estate deed gave ownership to the 3 children West Virginia code states that while the parent is still living, she maintains a small ownership percentage in the home. The children have never lived in the home.

The house sale was $160,000. Settlement expenses was $12,000. Each child received $40,000 (and a 1099-S) and the mother a smaller percentage. For me the 1099-S from the real estate legal group show’s Gross Proceeds of $40,000 (which would be filed to the IRS by the legal group).

Someone in turbo tax community answer a 1099-S question this way in part. “it only needs to be reported on one of your income tax returns and it will most likely not be taxable.

It will not be added to your income as long as you did not receive a profit of over $250,000 and it was your primary residence for two of the last five years.” In our case the house was only lived in by the mother.

I’ve read that the 1099-S does not need to be reported, given the above information.

[SusanY1]

When a 1099-S is issued, it should always be reported even if the income will not be taxable.  Otherwise, there is a matching issue with the IRS and you will get an automated underreporter notice.  

However, this income likely is taxable and not subject to the exclusion because it was not your primary residence for two of the last five years.  Therefore, the portion of the proceeds that was considered to be yours isn't excludable under the primary residence exclusion.  On the portion attributable to your mother would be.  

Your share of the sale is taxable to the extent that it exceeds the basis in the property.  Since your mother is still living your basis would be her basis, divided by 3 (for your share).  Her basis will be her purchase price plus improvements made to the property (in most cases - there may be some other adjustments to her basis depending on how she acquired the house and if there was ever a joint owner).